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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.







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