The Case for a Pan-African Digital Currency - ARIE FINANCE - ACBM - ACES
The Case for a Pan-African Digital Currency
People have been talking for years about Africa’s potential and yet it always remains something that is about to be delivered or is just around the corner.
As a Group that constantly deals with entrepreneurs and business across the continent, we see this huge potential and also have clear views on concrete, practical steps to create an environment which will finally support the continent in achieving its potential. The emergence of new technologies provides a huge opportunity for Africa to leap ahead of the rest of the world and capture these opportunities.
Cross border trade and investment drives growth and value creation, yet in Africa such trade is immensely difficult. It is slow, complex, bureaucratic and risky – why? In ARIE Finance’s experience a huge barrier is Africa’s complex patchwork of currencies and payments networks.
There are 41 currencies in the African continent. These are often expensive and difficult to source, as well as being hugely volatile. Furthermore, many of them are pegged to the USD and as there tends to be an endemic shortage of USD in Africa. This is further hindered by the fact that most of the African currencies have an official conversion rate to the USD and a “black-market” rate.
All this creates massive discrepancies and complexities in the cross-border payments framework within Africa and across all payment counterparties. One way that has been proposed to address this is the creation of a single currency union for the continent, however, enough to see the difficulties Europe went through for its own partial and fragile monetary union to understand that this is not a practical option for the short-term or even mid-term.
A more practical solution is to use existing technologies to create a mechanism that enables much easier financial transactions between African countries whilst at the same time meeting the difficult burdens of KYC and AML regulation. A Pan-African Digital currency (“PAC”) would be such a solution and is something which ARIE Finance believes would create huge value if it was implemented on the continent.
But what do we mean by a PAC and why would it help?
In ARIE Finance’s vision, the PAC would be used as the currency for cross-border payments between banks and other institutions in much the same way that the ECU was used by European banks before it was replaced by the Euro. By converting each transaction sent and received into PAC, cross border transfers would be significantly easier, with lower costs and less friction. This would create a much more stable, transparent and rapid flow of capital across borders giving business the confidence to trade and invest, building new wealth and creating jobs and tax revenues.
To guard against volatility the PAC could then be structured as a stablecoin – a type of digital currency that is backed by assets, giving it much greater stability than Bitcoin and other cryptocurrencies. Africa has huge resources of vital commodities such as cocoa, gold, copper, oil and aluminium etc. and a PAC could be linked to a basket of these goods ensuring it remains relatively stable and reflects activities across the continent. By linking a PAC to these commodities, the PAC would reduce dependency on the USD enabling a much freer flow of capital with reduced distortions and risks.
The technology to create such a currency is already well established and there are many stablecoins in existence today. ARIE Finance recently proposed the creation of the PAC as part of a consultation process managed by the Bank of International Settlements – you can read our submission here. We will continue to make the case for a PAC in our meetings with regulators and other institutions across the continent. Much like the fintech revolution that M-Pesa inspired in Kenya, we believe the PAC could put Africa right at the forefront of fintech evolution – where it belongs.