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

WELL DONE UGANDA REVENUE AUTHORITY BUT …

Over the weekend President Yoweri Museveni commissioned the new head office of the Uganda Revenue Authority, an imposing structure that is set to dominate the Nakawa skyline for some time to come. Congratulations are in order to URA for the construction of such an aesthetically appealing building, which I hope wills set the pace for other developments not only in the area but in Kampala and even Uganda as a whole. I know the pride that comes with having completed such a massive build for the initiators and implementors. The new 22-story structure has allowed the tax man to fold back all his offices from around the city back to the head office, a move they estimate will save them sh7b annually. Using simple math the sh140b will pay for itself in 20 years. The move is seen as precursor to a government move to build a ministerial compound in Bwebajja, where all ministries will be relocated sometime in the future. I have seen comments that such actions are evidence that...
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

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

FINANCING OUR ENTREPRENEURS, A CHALLENGE WE CANNOT IGNORE

In recent weeks the issues of financing for business has been in the news, in one form or the other. We have seen the challenge a past minister is facing with having to hang onto his home. The case is in court, so we can’t discuss its merits and demerits, just to say he may have fallen prey to some predatory practices, with the lender skirting dangerously on the edge of the law. Across the border in Kenya a cap on bank lending rates has been repealed. Three years ago Kenya’s parliament passed a law restricting lending rates to two percentage points above the rate at which the central bank lent money. In reaction banks pulled back their lending to businesses, depressing the economy and prompting the reversal. So now banks can “properly” price their loans, often to the discomfort of small and medium sized businesses. The two incidents are related and speak to the availability and cost of credit. In my business career I have benefitted immensely from credit. It is next...
Post a Comment
Read more

NOT ONLY THE HARDWARE BUT THE SOFTWARE TOO

In the middle of September the United Nations released its annual Human Development Indicator (HDI). This index serves as an indicator of the quality of life of a country’s people by measuring the health, education, inequality, poverty and security standards. Aside from the statistical measures of development like GDP growth, this is obviously a better measure of how people are actually doing. In this year’s HDI report Uganda was ranked 162 out of 189 countries with a HDI score of 0.516. The index goes from zero to one, the nearer you are to one the better. Our score puts us in the low human development category. But as bad as that sounds we have been worse. In 1990, the earliest year that these figures were compiled our score was 0.311 even the UN recognises that we have improved 66 percent in the last three decades. According to the UN figures life expectancy has risen to 60.2 years   from 45.5 in 1990; expected years of schooling has doubled to 11.6 fr...
Post a Comment
Read more