Today: July 23, 2024

The Horn of Africa States: Digital Currencies and the Region

July 2, 2024

Dr. Suleiman Walhad
July 2nd, 2024

Money is as old as when humankind started to exchange the toils of their resourcefulness. It started initially through bartering of commodities, moving on to involve some commodities being used as a medium of exchange to fiat and paper money and it s now moving into the electronic world. Money, we must all know, is a medium of exchange, but it also serves as a unit of account and as a store of value. Most people are familiar with the first (medium of exchange) but mostly people of finance and economists understand the other two functions of money (unit of account and store of value).

Exchanging goods and services is the most common activity of humanity. They must sell and buy goods and services continuously to sustain their lives and this brings in the importance of what we generally refer to as money, which moved from shells to metals such as gold and silver to paper money to electronic money.

Throughout history, people involved in money and finance have worked on improving the nature of money to reduce costs, its portability and transferability and indeed, convenience but also being acceptable to people. We are familiar with banks and financial institutions which work in the world of money, the products and services provided by these institutions, regulations by governments through central banks and other financial authorities and hence all the costs involved. A country’s money is usually referred to as its currency and accordingly every country or group of countries own their own currencies.

In this article, we shall address digital currencies and developments thereof in the region. A digital currency is a new development to what is generally referred to as “electronic money”, the name given to the different ways the public, financial and non-financial institutions use electronic transfers as part of payment systems. Electronic money is not a new money or a new medium of exchange, but digital currency is a new medium of exchange and hence a new currency or money.

A digital currency is a currency which is only accessible through computers or mobile phones and exists only in electronic form. It does not have a physical form like paper and coins. It does not require financial intermediaries like banks and financial institutions. Digital currencies, therefore, offer a cheap way of money transfers but since digital currencies are only accessible through computers and electronic wallets connected to the internet and related networks, they can be susceptible to hacking.

Digital currencies may involve cryptocurrencies, which are digital currencies. which use cryptography to verify and secure transactions in a network. Examples of cryptocurrencies include Bitcoin and Ethereum. Cryptocurrencies are generally virtual currencies and are unregulated and exist only in digital form.

A digital currency covers a wide range of currencies that exist in electronic form. They can be virtual currencies, which are unregulated digital currencies controlled by the developers or founding organizations. They are controlled algorithmically through defined protocols. Examples include gaming networks, which do not involve purchase or sale transactions but a transfer of value.

There are also Central Bank Digital Currencies (CBDCs), which are issued by the central bank of a country, and which is the subject of this article. A CBDC is a supplement to the traditional fiat currency of a country, which exists only in digital form. Payment systems have been tremendously improved through electronic systems and hence money is changing with it. The world’s central banks have come to the realization they should keep up with the changing needs of the public and must, therefore, provide a public option as the future of money changes right in front of them.

Currently, there are some134 countries and currency unions like the EU, representing 98% of global GDP, which are exploring CBDCs. Of the G20 great economies of the world, nineteen countries are in advanced stages of CBDC development. The Bahamas, Jamaica and Nigeria have fully launched CBDCs but progress in the United States of America appears to have stalled. There seems to be a gap between the US and the G7 banks including the Bank of England and the Bank of Japan.

In the Horn of Africa States only Ethiopia appears to be the only country that has embarked on the trail of cryptocurrency mining and digital currencies. Ethiopia is leveraging its abundant hydropower resources. Recently (June 14th, 2024) a new proposal was reported to have been submitted to the country’s lawmakers. It involves a new proclamation to pave the way for the National Bank of Ethiopia (NBE), its central bank, to introduce digital currency in the country. The Council of ministers are reported to have endorsed changes to be made to the NBE establishment proclamation including a key amendment allowing NBE to issue digital currency as is necessary in the future.

The Horn of Africa States region is not behind in other electronic monies and payment systems. As a matter of fact, Africa is a vanguard region in digital and mobile banking, which has assisted millions in the continent to have access to some form of banking for the first time. The region is a leading market for both digital and mobile banking with millions of people never visiting what one would refer to as a normal bank branch.

This is driven by rapid and improved development of technology in the region. The GERD of Ethiopia which is expected to provide a cheap energy bill is expected to contribute to the development of digital currencies and especially to Bitcoin and other electronic currencies.

According to MoneyWeek, ”Favorable demographics have put Africa on the path to growth when it comes to mobile money and digital banking.” MoneyWeek is a British investment magazine and covers economic and financial news. The magazine advised that the United Kingdom is short of workforce in the region of some one million earlier this year. It said, “The number of people entering retirement or leaving the workforce owing to long-term health difficulties has increased dramatically.” This is not unique to the UK but also affects many other developed economies, mostly in the G7 group. They are all dealing with declining birth rates and economic inactivity as highlighted above.

This contrasts with Africa, which enjoys a growing working-age population over the next three to four decades. The magazine noted and predicts that some 80% of the working-age population over the next decades will come from Africa. This will make the continent own leading fast-growing economies, according to the African Development Bank Group. The difficulty is that traditional accessibility to markets in Africa is not only limited but also difficult. This has brought electronic and digital money as the vanguard processor of such accessibility. It is far easier to build a vast mobile network over vast distances and here is where Africa and the region is expected to shine.

Digital connectivity is what young people would want now and in the future. McKinsey, the leading consulting firm, found out that over 70% of all transactions in Africa are conducted via mobile with only some 20% being conducted through face-to-face meetings in the continent. This has been assisted by a combination of rising mobile phone penetration in the continent, innovative fintech technologies, and supportive or lack of regulatory environments. The continent is just waking to the huge potential of digital and electronic monies and no wonder the central banks in the region are gearing not to be left behind.








  1. Dear Brother Dr. Suleiman bin Walhad,
    As always I have had the privilege of being educated by your well written article in regards to the economics of the Horn of Africa.

    Meanwhile, I would like to see you also taking about system of governance that may be the most applicable to the countries of the region considering it is a pot many cultures. I am confident in your intellectual horsepower to educate us on the two forms of governance historically available. A republic or democracy? I am sure you know about the many public outbursts that region has gone through since the 1960’s and what that created. I eagerly look forward to your educated opinion. I have similar request to another dear brother who I consider as a gem as you are to region.

    Blessings to you and your family.

  2. Make that:
    Meanwhile, I would like to see you also talking about system of governance that may be the most applicable to the old country considering it is a melting pot of many cultures. I am confident in your intellectual horsepower to educate us on the two forms of governance historically available. A republic or democracy? I am sure you know about the many public outbursts that country has gone through since February 1974 and what that created. I eagerly look forward to your educated opinion.
    Blessings to you and your family.
    I just cleaned it up.

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