At a time when so much of the world is changing due to the digital revolution, there are many who have assumed that Africa will be left behind. But rather than accept a continuation of the status quo, there has been a strong rise in the local technical class, as well as a determination to free Africa from dependence on foreign currencies.
The growth of blockchain-based local money, most notably in the form of stablecoins that are pegged to fiat currencies, gives the next generation of Africans an interesting proposition. This is shown by the fact that the likes of ike Nigeria (cNGN), South Africa (ZARP), and Mauritius (MUR stablecoin initiatives) are leading the way in using stablecoins as a smart digital hedge, with the goal being to protect consumers against inflation and exchange instability.
With all of the above in mind, we’re going to take a look at the rise of African stablecoins, assess their benefits, and consider Zimbabwe’s role in the near future.
What Are Stablecoins?
A stablecoin is any cryptocurrency that is pegged to real-world assets, meaning it is backed by a real-world asset. These are generally national fiat currencies or tangible commodities, both of which are well understood by markets and investors. The combination of stable real-world performance and behavior with blockchain transparency is designed to give users and markets greater confidence in the viability and stability of the cryptocurrency.
Why Are Stablecoins Being Adopted in Africa?
Africa’s long struggle with currency volatility has been well documented. Issues such as limited capital controls, rampant inflation in certain areas, and limited physical banking infrastructure each play their part. Stablecoins are designed to provide greater balance and flexibility by enabling users to make cross-border payments, create savings accounts, and build e-commerce businesses in parts of the continent where traditional finance is not viable. For example, did you know that according to the World Bank, remittances to Sub-Saharan Africa cost more than 7.5% on average? The use of stablecoins is predicted to drive this value below 2%.
Zimbabwe’s Continued Search for a Digital Solution
- Mavhunga puts DeMbare into Chibuku quarterfinals
- Bulls to charge into Zimbabwe gold stocks
- Ndiraya concerned as goals dry up
- Letters: How solar power is transforming African farms
Keep Reading
Zimbabwe’s relationship with inflation has been marked by several periods of hyperinflation, most notably in the early 2000s and again, but to a lesser extent, in 2019. With local currencies becoming effectively worthless in both instances, successive administrations have looked to create stability with initiatives such as running the economy on USD and introducing a foreign reserve-backed and gold-backed currency in the form of ZiG.
What’s important to note here is that many families, professionals, and local businesses already use digital USD and mobile wallets as payment solutions. There are even some who use USDT transactions as part of their financial ecosystem. This has primed the populace for local stablecoin acceptance because the people are used to digital transactions and alternative currencies. This gives Zimbabwe an advantage over countries that have a much more stable relationship with inflation and fiat currencies.
Is a Zim Stablecoin Workable?
A Zimbabwean stablecoin could be pegged to the value of the USD, to ZAR, or even to the new ZiG. In terms of stability and proof of concept, the USD may prove to be the most attractive route to take. This could then open up cross-border trade with the rapidly growing economy in South Africa, helping to fuel growth in sectors such as tourism and hospitality.
Early signs are that there is at least the will to see the experiment through, with the Reserve Bank of Zimbabwe’s 2024 gold-backed digital token being seen as a key early experiment in asset-backed currency. That said, the basics need to be right and the fundamentals need to be in place. Standardized regulation, a perception of transparency that builds trust, and sufficient digital infrastructure are still the biggest hurdles to the implementation of a Zim stablecoin.
Africa’s New Class of Emerging Stablecoins
Nigeria’s cNGN (Crypto Naira) launched in 2024 with the aim of combining blockchain-based systems with regulated fintech. At the same time, the development of South Africa’s ZARP, which is pegged at a ratio of 1:1 to the Rand, is designed to provide DeFi access to those who still wish to use local currency. The point here is that they both demonstrate a willingness to move away from global coins like USDT and USDC and to instead develop localized solutions.
Important Benefits to Consider
- Financial flexibility: Stablecoins are being used by small businesses and freelancers across East and Southern Africa
- Startup innovations: The likes of Yellow Card and VALR are busy integrating local stablecoins with fiat systems
- Cross-border potential: A focus on interoperability is driving the mission to make African stablecoins usable across borders via secure blockchain rails
In the interests of balance and objectivity, it is also important for us to consider other paths that could work alongside local stablecoins and fiat currencies to shape the new African economy.
Binance Coin (BNB) As A Benchmark for Utility Tokens
Alongside stablecoins, there are utility tokens, with Binance Coin (BNB) being a prime example. BNB is used to pay trading fees to provide convenient access to DeFi products, as well as allowing investors the option to participate in new token launches. While BNB’s value is market-driven (as opposed to being pegged like a stablecoin), it has the benefit of being widely adopted, giving it a high level of relative stability compared to other tokens.
If we think of African stablecoins as tools that aim to create local stability, we can view BNB as a tool to drive global usability and scalability. The contrast serves to highlight both the advantages and limitations of a localized stablecoin approach to finance.
BNB Case Study: Utilization in Online Casinos
BNB’s use in online casinos is designed to offer instant, low-fee, and transparent transactions. The best Binance Coin casinos are, therefore, examples of real-world utility because they demonstrate how digital tokens are able to move past speculation and become core components of functioning payment systems. That said, this is only possible when done within the framework of responsible gaming practices and alongside independent licensing and auditing.
Embracing Regulation & Regional Cooperation
There is a misconception that the crypto space is the domain of those who have grown distrustful and cynical of the practices of big government and major corporations. While the anonymity and personal security may be attractive to some, it’s the way in which the industry runs towards regulation that will make the difference.
African stablecoins will only succeed when combined with regulatory clarity and fluid interoperability. Central banks and blockchain startups need to work together to form a new branch of the local economy, allowing value to change hands quickly and efficiently. For this to be possible, a real sense of pan-African cooperation needs to be created, with entities such as the African Continental Free Trade Area (AfCFTA) having key roles to play. With regulation and cooperation comes a sense of unification and standardization that will prevent fragmentation. The last thing Africa needs is a fractured system in which each country has a different system that is isolated from its neighbors. To avoid such a disjointed future, it is essential that transparent regulation, progressive public education, and provably independent audits form the backbone of how the industry grows.
Innovation Becomes Integration
Africa’s move toward an economy built on local stablecoins is about so much more than attempting to follow global trends for the sake of it. While there will always be an experimental technical class, the real driver here is to solve problems of local inflation, prohibitively high remittances, and a lack of inclusion due to gaps in physical infrastructure.
Zimbabwe can serve as an informative regional test case, in no small part due to its digital-savvy population and forward-thinking approach. By combining local African stablecoins with more established options, such as Binance Coin, there is the potential to transform how money changes hands and how it powers everyday life and commerce.
