Linked capital markets will support Africa’s growth, say experts

By ALLAN ODHIAMBO

Integrated capital markets and a common cryptocurrency could help African nations sustain growth after the Covid-19 economic crisis, experts have suggested, citing the benefits of shared payment and transparent market systems.

Augustine Ujunwa, an economist at the West African Monetary Institute, said an efficient integrated capital market would be essential for raising debt to finance development needs, especially at a time when Traditional revenue streams have been disrupted by the economic fallout from the pandemic.

“Our markets and countries are small, so we need to take a regional approach to integrating markets. But first, harmonize the laws, regulations and protocols governing our fintech and digital systems,” he told delegates attending the African Economic Conference in Cape Verde on Friday.

Cryptocurrency debate

Proponents of integrated capital markets claim that they allow savings to be pooled across regions while members enjoy the benefits of cost and information sharing, risk diversification as well as competition and increased innovation among financial institutions.

The approach further expands the choices of financial products available to regional and foreign investors and strengthens ties to the global economy through increased market attractiveness.

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Several regional blocs, including the East African Community (EAC) and the Economic Community of West African States under the East African Capital Markets Integration Council West, are already pushing for the integration of capital markets in their respective areas.

Experts said adopting a common cryptocurrency would also help support Africa’s growth.

Anouar Hassoune, managing director of the West Africa Rating Agency, said a common cryptocurrency would help reduce the cost of doing business and give the continent an identity.

“We need a cryptocurrency acceptable to each member state. It’s better to do it at continental level, and we have the expertise to do it. It’s a question of governance, not a question of technology,” he said.

He added that the proposed cryptocurrency could serve as an alternative to monetize some of the continent’s endowments, such as gold and other commodities.

Emmanuelle Riedel Drouin, head of the Economic and Financial Transition department at the French Development Agency, supported the idea of ​​a pan-African cryptocurrency but said there were prerequisites.

“There is a lot of work to be done on the digital infrastructure, the development of payment systems, the interoperability of payment systems has to be worked on, so there is a lot of work to be done in collaboration with financial institutions on the digitization of delivery and payment channels,” she said.

She added that it is essential for economies to diversify sources of financing in order to reduce their dependence on them. Several regional blocs, including the EAC and central banks around the world, are exploring the adoption of digital currencies.

Fiat money

The EAC Secretariat is assessing the potential of a Central Bank Digital Currency (CBDC) for their shared payment system to end the reluctance of member countries to trade in each other’s currencies.

A CBDC uses an electronic record or digital token to represent the virtual form of a fiat currency of a particular nation or region. These digital currencies are centralized and are issued and regulated by the competent monetary authority of the country.

A CBDC could provide an option for EAC states, which aim to achieve a single currency for the region by 2024, in line with the bloc’s monetary union protocol.

The CBDC acts as a digital representation of a country’s fiat currency and would be backed by an appropriate amount of monetary reserves like gold or foreign currency reserves.

The CBDC, however, is different from the many cryptocurrencies that have been created by different individual organizations based on certain assets.