Take a look at the table below to get a sense of what happened to some of the major African local currencies over the past two years.
The Nigerian naira and the Ghanaian cedi lost nearly half their value against the US dollar in the last two years, while the rand lost close to 15%.
Most African currencies trade at a parallel rate which is much higher than the official bank spot rates due the lack of USD liquidity at the central banks. The Nigerian naira (NGN), for example, trades at a premium of 60-80% above the official rate.
The Kenyan shilling lost more than a quarter of its value over the two years, while the Ugandan and Tanzanian shillings fared decidedly better, shedding less than 10% of their value over the same period.
Major African currencies agains the US dollar
“This is one reason why US dollar-backed stablecoins are becoming so popular in Africa,” explains Luc Varejes, COO at crypto company OVEX.
“Local currencies in most African countries have depreciated heavily against the US dollar, and this has opened the eyes of millions of people across the continent to the benefits of stablecoins.”
Stablecoins are cryptos pegged to real-world assets such as the US dollar or even the rand.
USD-backed stablecoins are fully collateralised by actual US dollars and are audited to verify this.
Of the top 20 cryptos measured by market cap, three are US dollar-backed stablecoins – Tether, USDC and Dai – with a combined market cap of $126 billion. Unlike other crypto assets, a USD stablecoin is theoretically equivalent to the dollar (the 1:1 peg has been temporarily ruptured during moments of market stress in the past, but has returned to peg relatively quickly).
Traders use these stablecoins to park funds after investing in more volatile assets, such as bitcoin (BTC) or ether (ETH), without having to leave the crypto space and incur the costs that come with that.
Residents in countries faced with never-ending cycles of currency depreciation, such as Venezuela, Lebanon and Nigeria, have started to wake up to the possibilities of stablecoins, says Varejes.
“In countries with weak, depreciating currencies as well as political instability, we are seeing massive stablecoin adoption,” he says.
“There is a bit of a learning curve to go through because users have to acquire these stablecoins on crypto exchanges using their local currencies, but they are learning fast.”
Some African countries have exchange controls that limit or prohibit the export of currency. OVEX has representative offices in several African countries and now offers a live price for BTC and other cryptos in Ghana cedis, Nigerian naira and many others.
“A lot of our clients are importers/exporters, and have the need to hedge currency risk or facilitate payments and we are able to give them US dollar stablecoins such as Tether (USDT) or USDC in exchange for local currency to achieve this. Crypto is currently unregulated in Ghana, as an example, so people can purchase it quite easily.”
Another use case for USD stablecoins is to park savings into hard currencies, which are less prone to depreciation. Those who did this in Nigeria and Ghana two years ago would have saved themselves from a depreciation that would have wiped out nearly half the value of their savings.
Companies using USD stablecoins to park their funds are immunised to a large extent against local inflation. When it comes time to pay bills, they can convert the stablecoins back to local currency at a much higher exchange rate.
Widest range of stablecoins in SA
OVEX offers the widest range of stablecoins in SA and has expanded its footprint to Europe, the Middle East and the broader African continent. OVEX is also the first exchange to offer live pricing for multiple African currencies (including NGN, XOF, GHS, KES, BWP, UGX and more). You are able to see its live pricing here.
In January 2024, the Securities and Exchange Commission in the US approved 11 issuers that had applied for bitcoin exchange-traded funds (ETFs), opening the door to a wave of institutional adoption. This is expected to bring greater market liquidity and transparency, as well as price stability to bitcoin, which may make it a better store of value for corporate treasuries than perhaps even the dollar.
OVEX has a Category 1 licence from the Financial Sector Conduct Authority, operates as an exempt CASP (crypto asset services provider) in South Africa and is authorised by the South African Reserve Bank to facilitate international payments. It is also licensed in Dubai, registered in France as a Digital Asset Service Provider (with the French regulator, the AMF) and Australia (under Austrac). OVEX is currently applying for payment and crypto licences in several other jurisdictions.
This means it can offer clients the ability to purchase either stablecoins or standard forex services to buy and sell fiat currency.
OVEX is best known for its over-the-counter (OTC) desk that allows customers to purchase large crypto volumes at a single price. That’s much harder to do through normal retail exchanges where large volumes are broken up into smaller deals that are executed at different prices and often over hours or even days.
The OVEX online platform has been upgraded to allow users to get instant indicative prices for both cryptos and fiat currencies.
“You don’t have to call a representative and hang on the phone to get a quote for a currency or a crypto,” says Nick Bergonzoli, marketing lead at OVEX. “Clients want to be able to get prices instantly and know that if they execute an order, it will get filled instantly at the indicated price. This is a huge advance for individuals and businesses who want to acquire crypto or send value across borders.
“The instant OVEX buy-sell trading tool enables users to access an array of cryptocurrencies at competitive prices with their local fiat. This is designed to make it incredibly simple for users to acquire crypto assets or stablecoins, but if they need help from an OVEX agent, they can get it any time.”
Brought to you by OVEX.
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