Skip to main content

CRYPTOCURRENCIES ARE COMING, ARE WE READY?


In the last few decades in Uganda we have seen the currency become so worthless a large part of the population resorted to barter trade – exchanging goods for goods.

Then the currency stabilized and we enjoyed having money in our pockets. Our money habits continue to evolve. Increasingly we don’t need physical cash to do our business. 

Debit cards, mobile money and e-banking services are pushing us fast towards a cashless society.

And now we are moving into a more intangible space – cryptocurrency.

"As I understand them these are digital currencies, generated using encryption techniques, that also verify fund transfers. Also that no central bank is involved in creating or regulating these currencies...

The more widely known cryptocurrency, Bitcoin was launched in July 2010 and its fate has been at best back ground noise to many of us, if at all. it has registered some limited attention but mainly for  speculative gains.

In recent years it has seen jumps and collapses in its value, as the speculators have jumped in and the professionals have jumped out. This incredible volatility – its value peaked at $20,000 in 2017 before falling back to about $4000 today, has caused more conservative investors to be more cautious around it or to reaffirm their determination to stay away from the whole cryptocurrency business.

But recently I came across an interesting article about social media Giant, Facebook’s plan to launch their own cryptocurrency. The article convinced me that while the cryptocurrency pioneers have not gained much confidence from us who are used to physical cash, Facebook may have the means and will to redress our concerns.

In basic economics a credible currency is a store of value, a reliable medium of exchange and can be used as a unit of account. Traditionally ensuring these three values has been the mainstay of central banks on behalf of governments.

It is still early days but current cryptocurrencies have failed on all accounts; they are simply too volatile to be a store of value, not reliable as a medium of exchange as far as they are not widely held and for the two above reasons hard to use a unit of account.

Facebook plans to do away with the volatility by pegging their currency to the US dollar or a basket of currencies. This will ensure greater stability as supply of the coin will be restricted to the size of Facebook’s reserves which don’t fluctuate widely.

It can quickly become a near universal medium of exchange when you consider that Facebook, WhatsApp and Instagram, through which the currency will work, hold about 2.3 billion accounts.

Making it a unit of account maybe the trickier part as this may depend on regulatory approvals across the various countries the currency will operate in.

"The benefits for my business jumped right off the page. Immediately there would be a lot of savings made from removing currency conversion costs, that alone is enough to make me sit up and take notice...

Whether Facebook succeeds or fails in its endeavors it is only a matter of time before someone takes this concept and makes it work in a way that is acceptable to all parties.

The question for me then is, is a county like Uganda ready for the inevitability of this change? But even before that should Uganda be interested in this development at all?
It’s a long way before cryptocurrencies become pervasive, but rest assured it will take a much shorter time than it took for the current paper money and coins we use today to be universally accepted.

"The savings in currency conversions can be massive for Uganda. Assuming half a percent difference between buying and selling rates of any currency this could add up to about $35m in savings on our current $7b import bill....

The speed of payment settlements will add more savings as time is money. The underlying block chain technologies can quicken and ease doing business as transactions can be carried out in real time with the highest of integrity.

Being on one currency platform as our suppliers or clients abroad will throw up so much business as the initial transactions will be carried out much faster than is currently happening.

But before anything can happen our technocrats who hold the key to policy need to understand these new trends and by using wide consultation and research prepare to create a policy environment that enables rather than restricts our adoption of these new technologies.







Labels:

Comments

Post a Comment

Popular posts from this blog

BEWARE OF THE CON MAN

I read with a mixture of horror and sympathy for the victims of the latest Ponzi scheme gone bad in town. Last week a company, Global Cryptocurrencies Ltd, collapsed and along with it went billions of shillings, by police estimates, of their clients’ money. The company working out of an obscure office on Namirembe road, managed to rope in all manner of clients with the promise of magical returns – 40% a week! I have been in business for most of my life, if I could be guaranteed 40% week I would sell everything I own and jump in with both feet. Or maybe not. And this is why. They say if anything is too good to be true, it is. If you can get an annual return of 40% on your investment you will be doing extremely well. So if you put in a million shillings in your business and walk away at the end of the year with sh400,000 after taxes you have found a good thing, and I would like to be your friend. I have seen my share of scam artists and con men. Below are my fast an...
Post a Comment
Read more

HOW TO RECOGNISE A PONZI AND NOT FALL VICTIM

Another Ponzi scheme has come crashing down around the ears of hundreds of “investors”. Unsurprisingly. In its recent reincarnation poor Ugandans were lured into a scheme where they bought computer tablets. This entitled them to a monthly pay off, $100, and a Christmas bonus for their children. In this case the unsuspecting investors -cum -victims were being given a share certificate. Meaning you accept to take the part of the risk in this project. Which was inadvertently reducing their burden of risk and liability for the issuing company. I leave that area to smart lawyers to handle.   As is always the case with these things, it’s not quite clear where the pay-out will come from. A common characteristic of these schemes is that you might get initial payments before you starting missing a few and the stories begin. The promoters of these schemes or scams often use the money from the latest entrants to pay the older “investors” until one of two things happen. Either...
Post a Comment
Read more

THE GOOD THAT CAN COME OF THE NEW UGANDA AIRLINES

I have fond memories of the Old Uganda Airlines. As a secondary school child, I took advantage of ticket concessions (my mother worked for Uganda Airlines) to fly to the UK to buy clothes and other goods for sale to my friends at school. These trips were a great adventure and served as a good foundation for the businessman I am today. It has been reported that the first two planes of the revived Uganda Airlines will be landing in the country within the month. The finance ministry has been presenting to parliament their needs to pay off deposits on the first two of six planes they are to take possession of in coming months. The project has its equal share of supporters and critics. I am a qualified supporter of the project. In business nothing is certain. We deal in probabilities. When getting into a venture we often must weigh the risks versus the returns of a project. If the risk of failure outweighs the potential profit we stay away, otherwise you are gambling...
Post a Comment
Read more

ARE WE HELPLESS TO DO ANYTHING ABOUT THE CARNAGE ON OUR ROADS?

Recently there was a horrific crash between a passenger bus and sand laden Isuzu truck on the Masaka-Kampala highway. To look at the pictures of the aftermath it is a miracle that only two were killed and 20 injured in the accident, which it is reported was a head-on collision between the two vehicles. We don’t go a week without news of a major accident on our trunk roads. I suspect that a combination of poorly maintained vehicles, improperly trained or inexperienced drivers, driving at break neck speeds are to blame. "A few months ago, there was a suggestion that the new paved roads were not properly designed and therefore causing the accidents, but I think that is a case of poor workmen blaming their tools.... If one was to buy this argument, what about the argument that we had fewer accidents when our roads were pot holed and it would take whole days travelling journeys that now take a few hours? So, we should we go back to our potholed roads? "Accord...
Post a Comment
Read more

A STITCH IN TIME

Last week the Bank of Uganda raised its key Central Bank Rate (CBR) a percentage point to ten percent from nine percent. This was the first increase in more than a year, a move prompted by BOU’s projection that price increases coming around the corner. Increasing oil prices, a weaker shilling and new taxes on mobile money services were cited as reason for this anticipated increase. We know that in the last year or so there has been a cash squeeze, money has been hard to come by. While the economy has been growing this has not been spread around evenly. It was hoped that if the economy can keep growing we can all begin to feel the joy. The Bank of Uganda has helped on this front by lowering its CBR from a high of 21 percent about seven years ago when inflation hit record levels. This allowed more borrowing by the private sector which has helped keep our economy ticking. But just when the economy was beginning to gain traction BOU has slammed on the brakes. We may ...
Post a Comment
Read more

LET US GIVE SMEs A CHANCE

Something is wrong when most of Ugandan business is shut out of the government procurement process. This is happening in Uganda today. Micro-, Small & Medium Enterprises (MSMEs) account for 90 percent of the private sector. These account for 65 percent of national output (GDP). On the other hand 75 percent of our now sh32trillion national budget is earmarked for public procurement but the MSMEs’ share of this action is only 15 percent. It does not take a rocket scientist to see that such numbers are behind the huge inequalities in our society and why the majority of us do not have hope of a better and brighter future. Thankfully this is not an insurmountable problem. If MSMEs had access to more opportunities accruing from the national budget the benefits to themselves and to the nation as a whole would be huge. These would include increased production which would lead to job creation, raise incomes at household levels, leading to reduced income ine...
Post a Comment
Read more

THE MUKWANO I KNEW

We have lost the greatest Ugandan entrepreneur of our time, Mr Amirali Karmali, more popularly known as Mzee Mukwano. I have known Mzee Mukwano for more than 40 years and most of what I am today is due to him. And I am not alone. "He has helped countless people through school – as he did me. Helped countless more in business – as he did me. And he has been a steadfast friend and source of support to countless more – as he was to me.... I first met Mukwano around about 1977. My mother was the secretary for the chief of operations at Uganda Airlines, a man I knew only as Hamid. Mukwano had come to charter the Uganda Airlines’ Hercules plane and I happened to be around the office then. He was a short man, an unassuming man, but clearly a serious businessman who would charter the plane to bring in goods that were in high demand here. He run a popular whole sale shop in Nakasero – Egesa Commercial Agencies, a beehive of activity and the go-to place for anythin...
Post a Comment
Read more