Africa’s leaders met in the Rwandan capital of Kigali and as a result they have launched a Continental Free Trade Area (CFTA), which some maintain will be the largest in the world. The 55 member states of the African Union (AU) have a cumulative GDP of $2.5 trillion (€2.8 trillion). The free trade area, which will include an easing of travel across the continent, is part of the AU’s Agenda 2063 development plan for its members. This was a great move by the leaders of the continent and it’s a step that should be welcomed.
The challenge however is that the infrastructure to make this possible does not yet exist. One such infrastructure is the single currency as highlighted by the South African President, Cyril Ramaphosa.
Speaking with the media, President Ramaphosa indicated that he fully supports calls for a single African currency and he also indicated that such currency maybe have to be digital. This is a perfect moment for the African continent to embrace a crypto-currency.
The South African Reserve Bank is already considering Crypto-currency as a result its work will be instrumental for the continent if a digital currency were to be established.
The South African Reserve Bank (SARB) has established a Financial Technology (Fintech) programme to assess the emergence of technological innovations in the financial sector and consider their regulatory implications.
The review process by the Reserve Bank will address regulatory issues like clearing and settlement, exchange control, monetary policy and financial stability and other issues like cybersecurity. Collaboration with other regulators is intended to address tax implications, consumer and investor protection, and money laundering. The SARB aims to complete the review in the second half of 2018.
The SARB’s equivalents in jurisdictions like the UK and Singapore have established innovation hubs, accelerators and regulatory sandboxes through with Fintech companies work with the regulators to test their ideas. The SARB has been interacting on an informal basis with Fintech companies and is considering whether to launch similar initiatives.
The Reserve Bank is also planning to launch a distributed ledger technology (DLT, or blockchain) experiment, known as Project Khokha.
Project Khokha is similar to the Monetary Authority of Singapore’s Project Ubin and will investigate interbank clearing and settlement on a distributed ledger. The SARB has appointed ConsenSys (a technology provider with experience on the Quorum, Ethereum-based, ledger) to develop a proof of concept in collaboration with the banking industry. This experiment is aimed at understanding the implications of using distributed ledger technology to transfer value and the SARB will release a public report on its findings during the second quarter of 2018. No decision has yet been made to move the national payments infrastructure onto a distributed ledger.
This step will be important for the country and will be in line with the thinking of creating a digital currency for the continent. An experiment by South Africa in this regard will also serve as a model for the continent when it establishes its own digital currency.
This move will also create a strong position for the continent to be a player in the digital economy. When the world decides to create a global currency, Africa will be ready if it acts now with its own digital currency.
Recently, Jack Dorsey the co-founder of Twitter and co-founder of crypto-friendly mobile payments company Square has indicated that the world may be ready to adopt Bitcoin as the global currency in the next 10 years.
If the world were to establish a crypto-currency in the next 10 years each continent would need to have its own infrastructure. At this point in time Africa is not ready but there are positive steps towards creating the digital economy.
In the next few months South Africa is planning to host the BRICS countries. This gathering will serve as a great platform for the country to share its thinking on the digital currency for the continent and potentially with BRICS nations.
Of all digital initiatives undertaken in the continent there’s none that is close to creating a digital currency for the continent. This is the time for technologists to work closely with leaders in government to create the future of African digital economy starting with the currency.
South African FinTech community should begin a process of engaging the Reserve Bank to ensure that the outcomes of the Reserve Bank process can truly create an innovative solution that will have positive impact for the economy.
Other African countries that are signatories to the Continental Free Trade Area agreement should also develop a working relationship between technologists, financial experts and government leaders. These efforts will allow Africans to say in 2063 – “Afro (suggested name for African digital currency) is the single digital currency for the African continent”- and that will be a game changer for the continent in the digital economy.
Wesley Diphoko is founder of Kaya Labs and Chairman of the IEEE Open Data Industry Connections in South Africa.