Blockchain technology interfaced with banking has been making waves in the financial world for the past decade with its decentralised ledgers and secure nature, revolutionising the way we make and receive payments.
The technology, along with stablecoins and increasing use of digital banking, is set to bring a new era of financial freedom and growth for Africa.
The Swiss-based Bank of International Settlements says over 30 countries are actively looking to use blockchain technology in national payment processing. Its use is now a matter of when and not if and it is imperative that African governments take the lead.
Critical to blockchain banking are stablecoins—digital currencies pegged to a stable asset such as the US dollar that has been gaining popularity in recent years as a way to avoid the volatility often associated with cryptocurrencies. This is a winning combination for many businesses and individuals looking to make fast and secure transactions.
One of the biggest benefits of stablecoins and blockchain payments is the increased accessibility they provide. In many African countries, access to traditional banking services is limited with large sections of the population ‘unbanked’. This can lead to difficulties in receiving and making payments and accessing loans and other financial services.
Blockchain and stablecoins offer a way around these limitations. Digital wallets can be set up quickly and easily, allowing payments without a bank account. It can also lead to increased financial inclusion as the ‘unbanked’ participate in the global economy.
Another key advantage of blockchain payments is their speed and efficiency. Transactions can be processed almost instantly with no need for intermediaries such as banks. This allows businesses to receive payments faster, increasing their competitiveness.
Goldman Sachs, JPMorgan and other gigantic financial institutions are open to blockchain technology, citing its potential for efficiency gains and cost savings.
Blockchain technology offers increased security for transactions. With no central point of control, the risk of fraud is reduced and the possibility of hacking is greatly reduced. This makes it an attractive option for those who desire safe and secure financial dealings.
With their value pegged to a stable asset, stablecoins are a safer option than traditional cryptocurrencies, which can be subject to sudden and large fluctuations in value. That gives businesses and individuals the assurance that their money will retain its value.
One area in which stablecoins and blockchain payments could have a particularly significant impact is cross-border transactions. In Africa, cross-border trade can be hindered by slow and expensive payment processes with high fees and long wait times. Africa, with over 52 currencies, makes cross-border trade tedious, expensive and slow. In some cases, it takes more than seven days to settle a transaction.
But using stablecoins and blockchain payments can make these transactions quicker and less costly, making it easier for businesses to trade with partners in other countries. HSBC, with its FX Everywhere platform has settled over $200 billion worth of FX trades on a distributed ledger platform. The cost savings were immense.
In addition, by providing access to banking services through mobile phones and other digital devices, digital banking can increase financial inclusion and allow individuals and businesses to access loans and other financial services. It can also reduce corruption and increase transparency as all transactions are recorded on a digital ledger.
The adoption of blockchain payments, stablecoins and digital banking has the potential to bring about significant change in Africa.
Increased accessibility, speed, efficiency and security, combined with reduced costs and increased financial inclusion, could help to drive economic growth and development in the continent. As more businesses and individuals adopt these new technologies, it is clear that they could play a major role in shaping Africa’s financial future.
