US Dollar Loses Dominance As Means Of Settling Transactions In Africa
Crypto enthusiasts and evangelists like Kim Dotcom and John McAfee are constantly bragging about how the US Dollar will be defeated by the mighty power of cryptos and, most of the time, their predictions are not very accurate at all. However, some recent reports are going to give a spark of hope to the people who believe in the future of Bitcoin as the one true currency.
The dominance of the USD in Africa is being strongly challenged by new emerging technology and by native African fiat currencies. More people are using mobile money (both fiat and crypto) and less are using USD recently.
Crypto Transactions Rise and USD Goes Down
Once upon a time, gold was the world’s preferred currency. After World War II, people decided to use the United States Dollar (USD) as the backbone of the world’s reserves due to the stability and strength of the currency. However, it looks like there are some chances that this might be beginning to change.
According to a new SWIFT report, the USD is slowly losing its hegemony as the main intercontinental cross-border settlement currency in Africa. Its use has dropped from 50% in 2013 to 45% in 2017, the report affirms.
More and more people are using local currencies and some others are using mobile money to trade. Payments in West African franc are getting more popular (4.4% in 2013 to 7.3% in 2017) while the South African Rand went from 6.3% to 7.2%. One of the most interesting parts of the report is that the percentage of mobile money users has basically doubled this time.
SWIFT believes that mobile payment companies will have a very important role in the future of Africa and the USD will still dominate the landscape for quite some time, but it is slowly releasing its hold over the country.
The African markets are more independent now and more cross-border transfers are made within Africa. Intra-African clearings have also increased from 10% to 12.3% in the timeframe of the study. This shows that many banks are routing money through Africa instead of using a clearing bank outside of the country.
While it can be a difficult mission to pinpoint how exactly cross-border payments will be used in Africa, the trajectory points toward the escalation of mobile-based settlement systems. While cryptos are not captured in the data, 6.4% of the transactions are not made using fiat currency.
Also, more than a dozen African countries have used cryptos in the last year and some regions are starting to adopt this technology more. According to the GSM Association, a global representative of the global operators, Africa will have a total of 725 million mobile phone subscribers in 2020, which will be a key for this development.
Trade Dynamics Are Changing In Africa
This report shows that the African continent is investing heavily in financial market infrastructures that will link many of the countries within it. Many people, including politicians and policymakers, have already perceived that creating a infrastructure for payments will be good for the economy.
Another sign that Africa is trying to get more independence from the rest of the world is that the continent has launched its biggest free trade agreement since the World Trade Organization was established in 1995.
Now, many African Development Banks expect that this new free trade area will stimulate the commerce between the countries and push the country forward.