African currencies’ have continued to lose their value when compared to the US dollar, one of the reasons driving Africans to consider cryptocurrencies.
According to a recent KuCoin report, Into the Cryptoverse:
“37% of crypto investors in Nigeria started trading cryptocurrencies more than 3 years ago, including 6% started doing so more than 6 years ago.”
Accordingly:
- Such rates of adoption can be attributed to the fact that the Nigerian currency, Naira, has depreciated by over 209% in the past six years
- In Ghana, the Cedi shed 8.86% of its value to the dollar between January 1, 2022, and February 25, 2022. This led Bloomberg to classify it as the worst of African currencies with the ‘Worst Spot Returns.’
- It is followed by the Zambian kwacha with a depreciation of 6.02% in the same period
Moreover, according to Bloomberg, which was ranking a basket of 15 African currencies, Ghana and the Zambian economies have been battling with fiscal slippages whilst their rising debts have created fears among investors regarding their economic outlook.
Closing out the top 5 worst performing currencies are:
- The Gambian Dalasi
- The new Sudanese Pound
- Ethiopian Birr
are among African currencies with the ‘Worst Spot Returns,’ said Bloomberg.
The conclusions drawn from KuCoin’s survey were reflected in Chainalysis’ Global Crypto Adoption Index of 2021 which ranked 6 African countries in its top 20 crypto adoption list. The report said that many residents are turning to cryptocurrency to preserve their savings in the face of currency devaluation, as well as to send and receive remittances and carry out business transactions.
Currency depreciation is a fall in the value of a currency in terms of its exchange rate versus other currencies.
Some of the causes of this depreciation include:
- Poor economic performance
- Interest rate differentials
- Political instability
- High rates of inflation
- Monetary policy actions
While bitcoin has been touted as a hedge against inflation, people across the continent are turning to crypto to protect their savings against depreciation. As the world’s most valuable cryptocurrency, Bitcoin has been one of the best financial assets to own, skyrocketing over 4,700% over the past five years.
Besides, bitcoin enjoys several more qualities that makes it an attractive hedge against currency devaluation. These are:
- Bitcoin’s fixed supply of 21, 000, 000 means that new coins can’t enter circulation, so there’s no risk of inflation
- It is not pegged to one currency, but is an international asset class that reflects global demand
- Being decentralized, it is not under the control of any Central Bank or monetary policy
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RECOMMENDED READING: Central Bank of Sudan Warns Against Crypto Use as Sudanese Pound Depreciates by Over 1/3
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