#4. Money, money, money
Must be funny. Cryptocurrencies in Africa, currency arbitrage opportunities, and more.
Welcome! Issue #4 of Emerging Markets explorer đ§Â covers stories of money in the strictest sense: cryptocurrencies in Nigeria and Kenya, a currency shortage in Yemen, and to explore more general topics, a news site to stay up to date with the technology scene in Africa.
If you wonder what Emerging Markets explorer đ§Â is, start here.
Cryptocurrencies in Africa
This week Bitcoin reached a record high of $57,000, and according to Pomp, if you had invested $1 in its early stages, youâd have $712,500 by today. But itâs not only American investors who trade Bitcoin: in Africa, there are 2 countries trading cryptocurrencies with an opposing tendency: Nigeria and Kenya.
Nigeria: the 2nd biggest trader. Their authorities might change this
Nigeria is the second country in the world in terms of Bitcoin traded in the past 5 years: 60,215 BTC valued at more than $566M. Its transaction volume had a yearly double-digit growth for the past 5 years, of at least 19% since 2017. The highest volume of bitcoin traded was 20,504.5BTC in 2020.
However, the Nigerian authorities put a stop to it. In February 2021, the Central Bank of Nigeria (CBN) requested banks and other financial institutions to close the accounts of cryptocurrency exchanges in the country. This means that Nigerians won't be able to use a card from a Nigerian bank or institution to process crypto transactions. Virtual currencies remain legal in Nigeria, but this new regulation will make trading through a Nigerian exchange almost impossible.
Kenya: the authorities embrace crypto
In contrast with the Nigerian authoritiesâ move, in 2021 the Central Bank of Kenya decided to use Bitcoin as a reserve currency to resolve the financial problems of the country.
Kenya is a leader in mobile money, with a remarkable presence of M-Pesa, and has used Bitcoin and other cryptocurrencies as a bridge currency to exchange Kenyan Shillings to other currencies.
The move of the Kenyan Central Bank towards holding reserves of bitcoin has the intention of reducing their growing foreign exchange losses and reducing their national debt.
Patrick Njoroge, the Governor of the Central Bank of Kenya, issued the following statement:
âOur decision to shift to Bitcoin is both tactical and logical. Our currency has always been the punching bag for the IMF which always claims that the Kenyan Shilling is overvalued. This has led to too much pressure on the Kenyan Shilling and this has a negative effect on the economy. We are losing too much simply because someone at IMF woke up on the wrong side of the bed. Bitcoin will put an end to this.â
Failure story: an unintended arbitrage opportunity in Yemen
Investopedia defines arbitrage as the simultaneous purchase and sale of the same asset in different markets to profit from tiny differences in the asset listed price. Currency arbitrage often happens due to differences in spreads, but in this case, it happened due to the face value of the actual coins.
In the early 1950s, monetary authorities in Yemen noticed a concerning trend: a Yemeni rial currency shortage.
They traced the origin of this issue to Dhirubhai Ambani, who was a young office clerk in a British Port in Aden. Ambani had discovered that at the exchange rate of that moment, the coins of Yemeni rials contained more silver than their face value.
He took the chance and bought Yemeni rials with British pounds, melted the coins to silver, sold the silver for British pounds, and repeated, making a tidy profit.
He was caught after 3 months and the authorities had him stop doing this. But he had understood the system and made it work to his desire, for a short arbitrage opportunity.
Dhirubhai Ambani founded Reliance Industries Limited in 1966, which nowadays is the largest Indian conglomerate with a market cap of $200BN.
Source recommendation: TechCabal
TechCabal is a news site for the African startup and innovation scene. It was created in 2013, and it covers local tech stories, funding rounds, and new startup announcements. They publish articles, reports, and expert opinions on their website, and publish the TC Daily newsletter, a comprehensive roundup of technology in Africa.
The advancement of technology and its impact in Africa has expanded astronomically since TechCabal was created. They are currently transitioning to TechCabal 3.0, which will maintain a strong focus on the startup scene, include more business and human angle stories, and in which they will speak to more government officials and corporates affecting the African landscape. The philosophy: Everyone is welcome.
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