El Salvador has left the whole world wondering whether it should follow suit after adopting bitcoin as legal tender this month, despite critics saying it comes with huge social, economic and political burdens. Africa, particularly Tanzania, could become a carbon copy of El Salvador.
Tanzania shocked the African continent last month after its President, Samia Suluhu Hassan asked the Central Bank to consider introducing cryptocurrencies. The news coincided with El Salvador 's declaration to introduce bitcoin as a second national currency, according to CoinIdol, a world blockchain news outlet. Whether Tanzania will adopt existing cryptocurrencies or create its own Central Bank Digital Currency (CBDC) is still unknown.
Although we knew something like this was coming after the death of President John Pombe Magufuli, both President Hassan Suluhu and her predecessor belong to the same political party "Chama Cha Mapinduzi". The cynical Chinese saying "same bed, different dreams" seems to apply to Tanzanian politics.
Had this news surfaced a little over 6 months ago when the previous government was still in power, it would have surprised many. Cryptocurrency transactions were banned in Tanzania in 2019 on the instructions of the previous regime of the Central Bank and classified as illegal activity.
President Nayib Bukele is the first world leader to push through a law making an independent cryptocurrency a national currency - a move that many, including the International Monetary Fund (IMF) and World Bank, did not support, citing environmental and transparency costs. However, the bitcoin proposal was passed by El Salvador's General Assembly by a vote of 60-22 against all odds. Since then, such crypto revolutions have broken out at the state level in many countries around the world.
In the neighborhood of El Salvador, Panama, Paraguay, Argentina and Brazil have all committed to passing similar laws. Down in Africa, Tanzania, a East African country nearly 9,000 miles from El Salvador, has just ordered its central bank to explore cryptocurrencies immediately, leading to an end to the 2019 crypto ban.
Although cryptocurrencies are not without risks, it is better for Tanzania to implement a liberal cryptocurrency policy. A country of over 60 million people, 30% of whom are unbanked, would benefit from decentralization and financial freedom. Although a larger percentage of Tanzania's population has access to commercial banking services, 68% of adults still borrow from informal networks. Cryptocurrencies would offer great potential for money transfers and investments. Relaxing regulations on cryptocurrencies or introducing such a currency opens the doors for foreign direct investment, tourism, and labor mobility.
The total crypto market capitalization, which is constantly growing and is currently close to $1.4 trillion, offers huge investment opportunities for developing countries. Mark Zuckerberg , Jack Ma, Jack Dorsey, all prominent billionaires in the world have an interest in Africa. Twitter's CEO Dorsey planned to go to Africa for six months in 2020 to explore investment opportunities in crypto and blockchain technology, while Jack Ma recently visited Rwanda. Mark Zuckerberg 's comment that "the future will be built in Africa" appears to be true. Akon, a crypto advocate, has started building a futuristic city in Senegal and possibly Uganda and Kenya. Akon's Senegal project, which carries a $6 billion price tag, could boost the Senegalese economy and the entire African continent through employment, tourism and other economic activities.
In addition, remittances are an important component of Tanzania's economy. In 2018, nearly half a billion dollars flowed into Tanzania in the form of personal remittances, and the figure rose sharply in subsequent years until the outbreak of COVID -19. With cryptocurrencies, Tanzania would benefit more from the current high remittance fees, which hover around 6.8%.
Tanzania is joining the rest of the world in adopting cryptocurrencies after the Tanzanian president instructed the country's central bank to explore the possibilities of adoption. Although cryptocurrencies are fraught with many question marks, including digital infrastructure, security, crime, and losses due to volatility, Africa's economies could thrive with the adoption of digital currency assets and blockchain technology.