Developing economies are (not surprisingly) leapfrogging developed nations in adopting Cryptocurrencies. In a way, they start with an advantage: a corrupt national currency where national have lost faith in its value. It is only faith in a £10 note which allows me to exchange it for goods in a shop. The piece of paper itself is worthless but it stands for something which we all believe and accept is valuable. The changes in its value are efficiently expressed in the foreign exchange market. Some countries have lost partial or even complete faith in their currency. Many today would prefer an alternative system and are not headed for the old safe haven, the US$. Many long for a gold standard but it is not practical in this day and age. Nowadays, in the new digital world, they head for one not controlled by the whims of their latest government.
For example, in Venezuela, Bitcoin has become the leading parallel currency. It provides millions of citizens with an opportunity to perform transactions and generate livelihoods, including buying food and other basic necessities in a country where official money is worth almost zero. It also allows them to purchase goods from overseas, overcoming ever-stricter capital controls.
In East Africa, local innovators have introduced cryptocurrency systems to support cross-border transactions, as exemplified by initiatives like BitPesa. In South Africa, cryptocurrencies are particularly popular. In Nigeria, local traders and activists believe this new money presents an opportunity to democratise the economy. This is propelled by the fact that people in Nigeria have been failed by conventional money.
According to my colleague Verengai Mabika, founder of BitFinance in Zimbabwe, the collapse of his country’s formal financial system has made BitCoin an attractive alternative. This is especially the case for online payments, which are restricted by banks, and for remittances, which constitute the backbone of the economy. A growing number of Zimbabweans are also using cryptocurrencies as a saving mechanism (37% of all Bitfinance customers use it for that purpose), This is after the massive loss of personal savings during the hyperinflation period of 2008, which led to the collapse of the country’s banks.
The decentralisation of money is at the core of this new trend, with potential repercussions in other fields. For instance, Ethereum is designed as a smart contract platform, that is a trading system completely based on peer-to-peer property rights. FairCoin was developed as the preferential currency for cooperatives, social economics and fair trade networks around the world. Cryptocurrencies are just the tip of an iceberg. There are currently over 6,000 complementary currencies in the world, over 50 times the number of conventional money systems. Most of these are user-controlled and are interest-free. You cannot make money by simply investing in them. Hoarding makes no sense in this new world. This is because the value is not in the accumulation but in the exchange – the size of the network. Their scope is often limited to certain territories or types of transactions (for example, personal care, sustainable mobility and local trade). This creates an incentive to support local economic development and forms of exchange that are valued by communities of users.
The world’s largest system of local currency is in Germany
Regiogeld is an example. It is a network of local currencies which have proliferated throughout the Germany. It has become the world’s largest system of local currencies, supporting small businesses and empowering communities. In the near future, we will have a variety of money with different qualities and different purposes. This will make economies more resilient against shocks and will support more equitable and sustainable development, by putting users in the driver seat and reinforcing local economic development.