The Train Is Leaving the Station: Digital Currency in Sub-Saharan Africa

The predictions were dire. In the early stages of the Covid-19 outbreak, the World Bank predicted a 23.1 percent drop in remittances to sub-Saharan African countries. With the region’s economies and households accustomed to receiving as much as $48 billion in remittances, a substantial decline—combined with disruptions in trade, suspensions of investments, and cratering oil prices—posed an existential threat.

And yet, despite forecasts, remittances have continued to flow. The dip turned out to be considerably less steep, even though sub-Saharan Africa is expected to enter a recession for the first time in 25 years. The World Bank revised its projections for remittances, estimating they would decline by 9 percent in 2020 and 6 percent in 2021. Total remittances to sub-Saharan Africa, judging from the new estimates, should hover around $44 billion this year. Why did these dismal predictions not match reality? It seems possible that the decade-long trend toward mobile money adoption and the nascent surge in digital currency usage were at least two factors that prevented a worst-case scenario. This points to the potential of these technologies to be a game-changer for the continent.

A Boom during the Pandemic

In the first half of 2020, Africa’s central banks and telecommunication companies, as well as research firms tracking digital currencies, have reported a significant jump in financial transfers. This money has been transmitted via electronic or mobile payments—linked to commercial bank accounts—and digital currencies, which Harvard Kennedy School senior fellow Timothy Massad defines as “government or non-government issued digital payment instruments.”

• A recent Reuters report indicated that remittances to Kenya were up 6.5 percent through August compared to the same period last year, while remittance inflows to Zimbabwe were up 33 percent through July.


• Airtel Africa reported its mobile money revenue grew by 30 percent through September 2020. Similarly, French telecom company Orange’s head of mobile financial services for the Middle East and Africa recently told Reuters “we saw an increase of transfers as the diaspora wanted to help their family.”


• Monthly digital currency transfers to and from Africa of under $10,000 increased by more than 55 percent in a year to reach $316 million in June, judging from data from U.S. blockchain research firm Chainalysis.

The uptick in mobile money and digital currency use is the product of telecom and banking policies to reduce fees, as well as an imperative to weather the negative economic effects of the Covid-19 pandemic. When the region started to record infections, e-commerce transactions quickly skyrocketed, with millions of first-time users. Many companies slashed fees associated with setting up accounts and transferring money to spur more adoption; MTN Uganda and MTN Cameroon, for example, eliminated some charges on its mobile money platform, including on money sent between customers. Safaricom, Kenya’s largest telco, in March announced that all person-to-person transactions under $10 would be free for 90 days. The Central Bank of West African States (BCEAO) also temporarily waived fees for mobile money transactions in several of its member states.

African businesses and individuals thus flocked to mobile money and, to a lesser extent, digital currency, to stay afloat during the economic crisis and continue to send money to family and friends in need. Digital currency users interviewed by Reuters, based in five countries from Nigeria to Botswana, shared that the technology was essential for continuity of operations.

The Balance Sheet

These technologies, especially digital currency, have positive and negative selling points. On the plus side, they have the potential to solve persistent problems hindering the flow of remittances, namely cost and reputational risks.

• Cost. It is more expensive to send remittances in sub-Saharan Africa than anywhere else in the world. While there has been some progress—a transfer of $200 to the region has dropped from 12 percent in fees to 8.5 percent—it remains double the Sustainable Development Goal target of less than 3 percent. Mobile money platforms, however, make remittance transfers cheaper and faster. The IMF notes that mobile operator fees range from 1 to 1.5 percent on average; MTN, for example, typically charges between 0.5 to 3 percent for its various digital services. Digital currency is even more expedient because it operates outside existing correspondent banking systems, bypassing intermediaries that tack on additional charges from transaction fees to currency exchange services.


•  Reputational risk. The number of money transfer operators (MTOs) has dwindled over the past decade, reducing safe and legal options for transmitting remittances. While Western Union and MoneyGram remain dominant players, some of its competitors and especially small MTO outfits have opted to close the accounts of clients perceived as high risk for money laundering or terrorist financing abuse. Known as de-risking or over-compliance, these companies fear the consequences of violating anti-money laundering efforts and combating terrorism financing (CFT) standards. The World Bank has called out these actions as a threat to the remittance industry, and has pressed for innovative solutions to address this challenge. Digital currency is one potential avenue to resolve these problems in part because transactions can be traceable without involving multiple intermediaries. While less familiar than traditional MTOs, digital currencies present the potential for a user to program, or embed, security features into financial exchanges between individuals or between individuals and institutions to ensure Know Your Customer (KYC) protections.

Nonetheless, digital currencies pose new challenges. As a nascent industry, there are “first mile, last mile” problems with digital currencies. According to an EU report, it is difficult to access a broker who can convert local currency into specific digital currencies. The same challenge exists in the receiver’s country. Some digital wallets, for instance, don’t include stablecoins backed by African sovereign currencies, raising questions about the ease of conversion. In addition, there are persistent worries about fraud and criminality. The G20 finance minister has warned that while stablecoins could have potential benefits of financial innovation, there are significant public policy and regulatory risks. According to Chainalysis research, fraudulent digital currency platforms received just over $8 million from users in Africa in June alone.

The Future is Here (Let’s Make it Work)

Digital currencies almost certainly will become more common in general and in sub-Saharan Africa in particular. With more individuals using digital currencies and many countries, including China, developing central bank digital currencies (CBDCs), it is imperative to establish government frameworks and public-private partnerships to regulate and support this wave of innovation. The promise of cheaply and seamlessly transferring remittances and, ideally, increasing financial inclusion, is worth the effort.

There is growing momentum behind digital currencies. With foreign counterparts unveiling new policies, multinational corporations launching digital wallets, and African consumers and businesses participating in transactions, the region’s governments should leap into action. It is very feasible to take measures to shape the region’s digital financial future, including mobile money, mobile banking, e-commerce, and digital currency. The region’s governments need to establish how and under what conditions digital currencies evolve and support longstanding economic and development goals, including reducing the cost of remittances. Below are six recommendations to hasten the secure and safe adoption of digital currencies and expand the use of mobile money.

• Establish national and continent-wide policies. There is a pressing need to develop policy frameworks and establish general principles for digital currency use throughout the region. While Nigeria and South Africa are moving toward regulation, most of the continent is undecided on or opposed to digital currency regulation. Kenya, which is a leader in fintech solutions in Africa, has been reluctant to embrace digital currencies. Even mobile money has been slower to take off in some countries, including Nigeria, Ghana, and South Africa, where regulators have been cautious and lukewarm about its transformative potential. The African Union (AU) should address these fintech innovations directly in its Digital Transformation Strategy and Africa Digital Financial Inclusion Facility, as well as account for digital transactions in the African Continental Free Trade Area (AfCFTA).This could address the inconsistencies between national-level regulations while establishing continent-wide definitions.


•  Partner with the private sector. The World Bank has encouraged governments to welcome new players to operate in the digital currency ecosystem, through national post offices, banks, and telecommunication companies, to increase competition and lower prices. African publics support private sector engagement in this space; according to the Official Monetary and Financial Institutions Forum, 50 percent of South Africans have confidence and trust in digital currency issued by major communications companies. Companies looking to sponsor digital currencies may wish to step up their engagement to persuade African governments of the advantages of partnering early. Governments and companies should work together to develop regulatory frameworks and address how remittances recipients can easily convert digital money into cash. Stephany Zoo, head of marketing at Bitpesa, a Kenya-based exchange, told Quartz that formalizing relationships between banks and digital currency exchanges is important to “ensure confidence and protection of the consumer.”


•  Foster complimentary systems. Africans are likely to use digital currencies, mobile money, and cash, depending on specific circumstances. Governments and companies should embrace a hybrid model. In some cases, it may make more sense to rely on mobile money for domestic remittances, or within regional groupings, such as the West African Economic and Monetary Union, that share the same currencies. Digital currencies, on the other hand, may be cheaper and more efficient with regards to financial flows from outside the continent. This principle of complementarity also will hold true if African countries establish CBDCs, as South Africa is cautiously mulling. These currencies can and should coexist with the traditional banking system, as long as those issuing currencies are trustworthy.


•  Promote education. While Africa is a world leader in mobile money payments—some 21 percent of adults in the region have a mobile money account—there is room to seize on new opportunities to introduce digital currencies. In 2019, there were 477 million unique mobile phone subscribers out of a population of 1.3 billion, according to GSMA. Part of the challenge will be focusing on financial and tech literacy, as well as addressing lingering mistrust regarding digital currencies. 


• Encourage adoption. Increased usage of these technologies will spur more businesses and governments to build new formal and informal infrastructure. Currently, there are not sufficient numbers of shops and landlords that accept digital currencies, according to a Reuters report, whereas the number of shops that accept mobile money, even in the most rural areas, is significant and growing in more than 20 countries. A strategy to work with businesses and retailers to accept this new technology, as well as allay concerns about consumer protection and fraud, will be essential for the wider adoption of digital currencies in the region.


• Enlist the United States. The United States has an opportunity to lead on these topics, convening tech and telecom companies, central banks, national governments, and international financial institutions to address persistent remittances challenges. There is already a G20 initiative on cross-border payments, as well as a growing openness from the IMF on CBDCs. The United States could provide financial and political support for African initiatives working to educate young Africans on the digital economy, such as Smart Africa. Similar to India’s Pan-African e-Network Project, the United States can also aid in capacity-building projects in collaboration with the AU and encourage knowledge-sharing. 

Judd Devermont is director of the Africa Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Topaz Mukulu is program manager of the CSIS Africa Program.

This commentary is made possible with support from Novi. 

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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