The persisting government directives aimed at curbing access to the dollar in East Africa is creating a surge in the adoption of stablecoins, according to Oluwatobi Ajayi, CEO of crypto payment platform Ivorypay.

The Bank of Tanzania recently reminded the public about the ban on domestic payments in foreign currencies, which has been in effect since August 2007. This directive reflects the foreign exchange challenges faced by neighboring countries Kenya, Uganda, and Rwanda.

“In reference to Tanzania’s directive to limit foreign currency transactions and encourage the use of the local currency, it’s clear that this could trigger a shift towards stablecoins,” stated Ajayi in an interview with NODO News. “We’re seeing local currencies weakening against the US dollar, which creates inflationary pressures, as a lot of what people buy, including essential items like food, are imported.”

The scarcity of dollars resulting from dwindling reserves has posed significant challenges for businesses and entrepreneurs in the entire east African trading bloc. Kenya’s foreign reserves improved in June 2023 to stand at $7.37 billion from $6.46 billion in May 2023 which was below the expected numbers.

In May 2023, Tanzania had foreign exchange reserves totaling $4.9 billion, while Uganda held reserves amounting to $3.60 billion. As for Rwanda, their reserves in April 2023 were recorded at $1.66 billion. In all these countries, the reserves are insufficient.

Ajayi emphasized, “Stablecoins can serve as a hedge against currency depreciation and inflation, thereby preserving the value of people’s money. Furthermore, they can facilitate cross-border transactions without the need for costly and time-consuming intermediaries.”

Stablecoins and the De-Dollarization Movement in Africa

Kenya’s President William Ruto recently called upon the continent to rely on local currencies for inter-trade instead of depending on the dollar. Additionally, the East African Legislative Assembly (Eala) has proposed establishing a framework for settling cross-border trade using local currencies.

Alice Anangi, the founder and CEO of Crypsense, told Nodo News in a March interview that up to eight major financial service companies had approached her firm seeking knowledge on the use of stablecoins to hedge against a plunging local currency. “Numbers have doubled and are from well-established financial institutions,” Anangi said then. Previously, her company would usually “receive one to two inquiries from fintech startups”, but is currently witnessing “a growing interest from commercial banks.”

According to a report by Finance Magnates, emerging markets characterized by high inflation rates, currency volatility, and limited access to traditional financial services are driving the adoption of stablecoins. These digital currencies provide a stable store of value and offer a solution to many of these challenges by enabling easy exchange for other currencies or assets.

“In markets where Ivorypay currently operates (Nigeria, South Africa, Ghana, and Kenya), the depreciation of local currencies has been a major catalyst for the adoption of our product. Since January 2022, we’ve witnessed an average depreciation of around 8% in the region, with currencies like Ghana’s cedi depreciating by over 45%,” explained Ajayi.

The erosion of local currencies against the dollar has spurred curiosity and adoption of stablecoins in Kenya and Nigeria, impacting their economies. This trend is expected to continue as the pan-African crypto platform, YellowCard, partners with Tether to expand stablecoin adoption across Africa.

However, Ajayi cautioned that stablecoins are not a panacea for the challenges faced by countries. He emphasized the need for adjustments to monetary and fiscal policies, coupled with structural reforms, to address the root causes of these issues.

The de-dollarization movement is gaining momentum, primarily within the BRICS (Brazil, Russia, India, China, and South Africa) countries. Egypt is also seeking to join this bloc to foster stronger ties with these nations.