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

A SHIFT AWAY FROM AGRICULTURE IS CRITICAL FOR UGANDA

Anyone who has half a stake in this country would be a keen observer of the economy and the direction it is taking. In the last three decades the economy has shown strong growth, only slowing to overcome bad weather, a global financial crisis or unrest in the region. Compared to when I started out in business, it has become a more liberal economy, with individual initiative being rewarded more and more. While the economy is still dominated by the informal sector, the formal sector is growing annually. But the biggest shift in the economy has to be the reduction in agriculture’s share of the economy from more than 80 percent to about 25 percent today. This has happened despite the leap in the production of everything from bananas to coffee or from milk to maize. What has happened is that more of the economy – though not nearly enough, has been taken up by industry, construction and services. This is how it should be and in fact, more work is needed in shifting t...
Post a Comment
Read more

GIVE OUR TRAFFIC POLICE A CHANCE

Last week during an investor interaction   Kampala Capital City Authority (KCCA) officials called on police to stop overriding traffic lights while directing traffic. KCCA argues that the traffic lights are large investment and it makes no sense for police to countermand them. In a classic case of “The importance of the river was not known till it dried up” on Friday the traffic police desisted from directing cars at the traffic lights leading to the worst traffic snarl-up in the city’s history. People were stuck in traffic jams around the city for hours and long into the night. Maybe it was the unhappy coincidence of the traditional Friday traffic and pre-Christmas excitement but without the traffic police directing traffic it was a mess. They made their point. It of course points to the bigger issue of a revamping of Kampala’s road network, which has remained   largely the same since independence but with an exponential increase in cars in the last three...
Post a Comment
Read more

WE NEED A BETTER SOLUTION FOR KAMPALA TRAFFIC

I am sure I am not the only one feeling it. Kampala’s traffic is becoming increasingly unbearable. Even the removal of roundabouts around the city seem to have an opposite effect to the intended purpose of easing traffic flow in the city. Kampala Capital City Authority (KCCA) has an ambitious plan of flyovers, underground tunnels and railway transport, which should help the cause, I hope. The snarl ups that we are coming fast accustomed to, are not only an issue of teeth grinding inconvenience but have a real cost on our economy by hampering and increasing the cost of doing business. A recent World Bank report suggests that as an economy, we are losing about sh3trillion annually due to traffic jams. The losses come in form of delayed deliveries, higher fuel consumption and the health consequences of seating in a smoke filled environment. To put this in perspective this is the combined budget of the health, agriculture and ICT ministries in this year’s budget. Or ...
Post a Comment
Read more

COME HELP BEAT BACK HIV/AIDS

Uganda has made tremendous strides in containing the AIDS pandemic. For some of us who were around in the 1980s and saw the worst effects of the AIDS pandemic, the way the country has contained the disease is not what we had envisaged back then. Ignorance, stigma and lack of drugs surrounding the disease saw thousands die horrible deaths – wasting away, tortured by opportunistic diseases and being shirked by family and a society out fear.  The doomsayers were projecting a major fall in our population, a collapse of the economy and a total breakdown of social cohesion. That the country is still around and fighting back the disease successfully, could not have been envisaged in those scary days of the 1980s when the disease came into the public conscious. Thankfully rather than sweep the problem under the carpet like many of the neighbouring countries, President Yoweri Museveni led a fight back against AIDS that had at its core widespread dissemination of infor...
Post a Comment
Read more

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

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