Should More African States Adopt Bitcoin As Their Reserve Currency?
As the world moves towards a digital economy, more and more countries are looking for digital currencies that can facilitate transactions in the new world. In Africa, when it comes to handling large volumes of financial transactions, most countries often turn to their country’s currency. But what if a country does not have a currency of its own? The answer, apparently, is bitcoin — a digital currency that is neither regulated by a government nor a central authority. In the meantime, Bitcoin has been growing in popularity as a reserve digital currency around the world. It is unique, versatile, and revolutionizes the way transactions are made.
Compared to traditional currencies, bitcoin offers many benefits — like security and transparency. So why are more African states not adopting bitcoin as their official currency? Or, are there risks associated with accepting bitcoin as a reserve currency for African states? Is it worth it for them to take the risk? To answer these questions, read on!
What is a reserve currency?
A reserve currency is any foreign currency that is held in larger amounts by central banks or other major financial institutions for the purpose of international transactions. After gold and silver, the first reserve currency was the United Kingdom’s pound sterling during the 19th century and early 20th century, before the United States dollar took over by the middle of the 20th century. According to the balance, factors which make a currency valuable as a reserve currency include;
- The economic size and macroeconomic policies of the country where the currency comes from
- The global relevance of the economy
- The openness of the country’s financial markets
- The flexibility of the currency
These factors also impact global trade since the reserve currencies are most effective during international payments, and they also support the value of national currencies.
Bitcoin — What is it?
Bitcoin was first introduced by Satoshi Nakamoto in a 2008 paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”. In his words, Nakamoto originally defined Bitcoin as “an electronic payment system based on cryptographic proof instead of trust”. This implies that Bitcoin is secured by cryptography; a secured communication technique that allows only the sender and receiver to view the content of the information.
While it is true that Bitcoin is among the digital assets or virtual currencies that operate on blockchain technology, its vast usage has made it become the most widely used cryptocurrency out of the over 5000 known cryptocurrencies.
Bitcoin also makes for an efficient payment system that is nearly impossible to fake or double-spend. In 2009, Bitcoin had its first public launch where a coin was sold for about $150. But over the years, its value has appreciated tremendously. As a matter of fact, on November 10th, 2021, the price of Bitcoin reached an all-time high of over $68,000, thus attracting the interest of major investors in the space.
Recently, cryptocurrencies such as Bitcoin and Ethereum have garnered a lot of attention in the international financial sector. With the global economy continuing to face numerous challenges, there is a growing consensus that cryptocurrencies could be one of the solutions.
What are the benefits of using bitcoin as a reserve currency?
Bitcoin was designed as an alternative to government-issued currencies, and its use as a reserve currency could help break the cycle of poverty and economic vulnerability across Africa. While there are risks associated with acquiring bitcoin as a reserve currency, the potential benefits of doing so are too great to ignore. For one, Bitcoin is global — meaning that it can be used anywhere in the world. Many experts believe that cryptocurrencies could play an important role in the future of the global economy. Given the increasing global interest in digital currencies, some countries are considering adopting bitcoin as their reserve currency. Secondly, Bitcoin is transparent — meaning that all the peer-to-peer transactions ever made using bitcoin are well displayed in a public ledger, accessible to everyone. Bitcoin is also reliable — meaning that over time, it has been tested and proven to be a viable means of payment.
Furthermore, Bitcoin can reduce the cost of international transactions as it permits users to directly exchange in the form of buying and selling without the interference of any third party. The digital currency is so unique that it cannot be managed or maintained by any central bank or government. It also makes it very easy to transfer money between countries, and this could help boost economic growth in Africa.
Risks associated with adopting Bitcoin as a reserve currency in African States
After the financial crisis of 2007–2008, many countries turned to digital currencies such as Bitcoin to overcome currency fluctuations and stimulate economic growth. At first, this seemed like a sensible decision — digital currencies are not controlled by any country or central bank, and they’re not affected by the political instability of traditional currencies. However, there are some risks that need to be considered before any state decides to adopt it as a reserve currency. First and foremost, there is an obvious risk associated with adopting a new, exciting, and volatile project — digital currencies aren’t backed by any tangible assets, and their value is ultimately based on faith.
Besides, digital currencies are vulnerable to cyber-attacks, which could lead to serious financial losses for states that adopt them as their official currency. Also, since the currency is not controlled or backed by any central bank, there is a potential risk that governments may restrict or shut down its operations after some time.
However, given the rapidly growing popularity of digital currencies worldwide, it’s likely that more African states will adopt bitcoin in the future.
Why African states should consider Bitcoin
This is a question that has been on many people’s minds for some time now. After all, bitcoin is a digital currency that utilizes blockchain technology to securely track all transactions. Additionally, it has the potential to transform the way economies are operated around the world. So why haven’t more African states adopted bitcoin as their reserve currency? As the world progresses and more countries embrace cryptocurrencies and blockchain technology, there is increasing use of Bitcoin as a means of payment, although many people are still skeptical of its long-term viability. But that does not stop some African states from adopting it as their reserve currency. There are several reasons why this could be a good idea.
First and foremost, bitcoin is decentralized — it does not rely on any central authority to work. Bitcoin also offers complete financial freedom to its users — no bank or government can control or manipulate its value, rather, its value is determined by supply and demand. Secondly, bitcoin is relatively new and has yet to be tested by the market — if it proves to be a success, it could be adopted by more African states as their official currency. This would as well provide stability to the currency and allow for faster cross-border transactions. Finally, the adoption of bitcoin as a reserve currency would provide African states with additional financial stability and help reduce inflation rates.
In conclusion, Bitcoin is secure, meaning that it’s difficult to counterfeit. All of these factors make bitcoin an interesting option for a reserve currency in African states. If we look at the history of currencies, it’s clear that there’s no guarantee of success for any new currency — but adopting bitcoin could be a step in the right direction. So what do you think? Is bitcoin the future of reserve currencies? Let us know in the comments below!