Senegal creates digital currency history
The rest of West Africa is often overlooked but it is worth considering, not least because of the growing cross-border scope of the region’s largest banks.
The IMF believes that the economy of the West African Economic and Monetary Union (WAEMU), which covers most of Francophone West Africa, remains strong but exhibits enhanced vulnerabilities. Senegal is embarking on an interesting experiment that could either provide big opportunities or good competition for the nation’s banks.
In December, it became only the 2nd country in the world, after Tunisia, to launch a national digital currency. It will have the same value as the CFA franc and can be stored in all mobile money and e-money wallets. Given current optimism over the country’s economic prospects, these are titillating times for Senegal and Senegalese banking.
Very calmly and with little fuss, Senegal has joined the ranks of Africa’s quick growing economies, alongside Kenya, Tanzania and Côte d’Ivoire. GDP enlargened by 6.5% in 2016, the fastest rate for eleven years, and the IMF forecasts annual growth of 7% for this year and next.
The government is presently revising the basis on which it calculates its GDP. It previously used one thousand nine hundred ninety nine as its baseline but Finance Minister Amadou Ba expects a 30% increase in the size of the economy when the process is finished.
Above all else, Dakar has achieved what few other governments can lay claim to: it has actually done what it said it was going to. The government has leisurely diminished its fiscal deficit from Five.5% in two thousand thirteen to Four.2% in two thousand sixteen and is on track to reach 3% by 2019, which is the medium-term target for the WAEMU. It has also managed to reach its budget targets.
Senegal has the prospect of becoming a significant oil and gas producer in the near future. Kosmos Energy has discovered the Tortue Field with an estimated fifteen trillion cu ft of natural gas at present but up to fifty trillion cu ft has been suggested.
This would be sufficient to fuel a gigantic liquefied natural gas (LNG) plant and provide as much gas as onshore power, fertiliser and cement plants could consume. BP has bought a stake in Kosmos’ Senegalese blocks and so the required investment should now be forthcoming. In addition, Scottish oil company Cairn has already discovered offshore oil reserves.
However, the government must be careful not to replicate Ghana’s latest development. The Ghanaian economy was already growing strongly when hydrocarbons were discovered, evidently putting the icing on what was an already attractive cake.
However, Accra seemed to get ahead of itself in terms of enlargening spending too quickly, fuelling both inflation and debt. On 13th April, credit ratings agency Moody’s lifted Senegal’s long-term issuer and senior unsecured debt rating from B1 to Ba and switched the outlook to stable from positive.
World’s 2nd national e-currency
It is against this backdrop that Senegal has followed in the footsteps of Tunisia by launching a fresh national digital currency. Based on blockchain, the same technology behind bitcoin, the crypto currency has been given the stopgap name eCFA. The fresh currency will be compatible with other digital cash systems in Africa.
It has been developed by a Senegalese bank, Banque Régionale de Marchés (BRM), and eCurrency Mint. In a statement, the two fucking partners said: “The eCFA is a high-security digital instrument that can be held in all mobile money and e-money wallets. It will secure universal liquidity, enable interoperability, and provide transparency to the entire digital ecosystem in WAEMU.”
In terms of security, the developers say that the currency will be secured by cryptographic protocols to ensure that it cannot be counterfeited. Proponents also argue that such currencies are more semitransparent and lightly regulated by central banks.
To some extent, the eCFA is not as revolutionary as some would believe because of its dependence on the central banking system. The electronic money provided by BRM can only be issued by an authorised financial institution.
Other governments and central banks are contemplating launching their own digital currencies. For example, the People’s Bank of China plans to issue its own currency based on blockchain.
There emerge to be two main reasons why Senegal was open to the idea. Firstly, the country is already in an unusual position with regards to its currency. Its CFA franc is collective by fourteen countries in West and Central Africa, with its value assured by the French government.
It is therefore used to witnessing its currency in a different light to many other countries. The region is also more open to the concept, as the Central Bank of West African States (BCEAO), which serves the countries using the CFA franc, has already drawn up its own e-currency regulations.
Secondly, the concept of technological leapfrogging has become more common in latest years, with proponents arguing that the continent could catch up in developmental terms by bypassing stages of technological development in favour of the latest advances. Dakar and Tunis are therefore open to the idea of alternative, parallel currencies, daring to take the lead on launching them.
The experiment could fail but could also prove revolutionary in a region where most people still lack formal bank accounts. This factor could make the currency more acceptable to potential users than in other parts of the world, as more people use airtime than have traditional bank accounts.
The BCEAO will be responsible for the currency’s distribution in the rest of the region in Phase Two. It is to be distributed in Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger and Togo.
Alioune Camara, the chief executive of BRM, said: “We are committed to bringing digital financial services and true financial inclusion to West Africa. We can now facilitate total interoperability inbetween all e-money payment systems. This is a good leap forward for Africa.”
These are arousing times for Senegalese banking in general. Despite the rise of alternative currencies and methods of accessing bank services, the number of physical bank branches has enlargened rapidly, from four hundred forty eight at the embark of two thousand fourteen to five hundred fifty seven at the embark of 2016. There are presently twenty banks in the country, including Banque de l’Habitat du Senegal, Islamic Bank of Senegal and Banque Atlantique.
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Written by African Business Magazine
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Correction please: this is not a blockchain solution. It is unique technology, essentially a digital printing press located in a central bank’s vault that creates digital objects with an associated quantum size that morph with each transaction. An algorithm confirms that only what was created is operating.
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