An advertisement for bitcoin is displayed on a street in Hong Kong in February 2022. Cryptocurrencies may have lost their lustre in many parts of the world amid swings in their value, but that has not dampened enthusiasm in Asia and Africa for central bank digital currencies. Photo: AP
by Kamala Thiagarajan
by Kamala Thiagarajan

Despite bitcoin’s star fading, digital currencies are catching on in Asia and Africa

  • Pilot programmes, full launches and other initiatives by China, Nigeria, Japan and Singapore show the appeal of central bank digital currencies outside the West
  • The impact of digital currencies on African and Asian economies will be significant as they provide greater convenience, lower transaction fees and more
The happiness-seeking Himalayan nation of Bhutan made headlines recently when Forbes reported it has been secretly mining bitcoin for years. Local newspaper The Bhutanese confirmed reports that the early investor in the bitcoin bandwagon was Druk Holding and Investments, the commercial and investment arm of the Bhutanese government.
It appears that the company entered the market in 2019, when the price of bitcoin was around US$5,000. The earnings, officials said, went towards subsidising the country’s power and hardware costs.
Like other nations dabbling in cryptocurrency, many economic factors seem to account for Bhutan’s interest in bitcoin. The Bhutan Development Update, a report from the World Bank, indicated that Bhutan’s hydroelectric power production – which provides 14 per cent of the country’s gross domestic product and 26 per cent of the government’s annual revenue – fell by 3 per cent in 2017-2018. Delayed hydroelectric projects cost the country dearly.
When the Covid-19 pandemic set in, tourism revenue took a hit as well. These developments probably motivated the government to mine bitcoin while keeping its citizens in the dark.

It’s not like this is a one-off, either. Earlier this month, Bloomberg reported that Bhutan’s investment arm has an agreement with bitcoin mining company Bitdeer Technologies to seek investors and build a US$500 million fund for further bitcoin investment.

Bhutan’s surprising bitcoin journey is reminiscent of that of another nation. Two years ago, El Salvador made bitcoin legal tender in the country and invested about US$20.9 million in the cryptocurrency. However, the experiment backfired as bitcoin lost more than half its value a year later, resulting in a paper loss of about US$60 million for the government.
Bitcoin’s star has since faded and its transaction fees have surged. This has put pressure on people in low- and-middle income countries and is a reminder that cryptocurrency is still a volatile asset. Moreover, it is increasingly preferred by criminals on the dark web.


Malaysian police flatten US$1.25 million worth of bitcoin-mining machines with steamroller

Malaysian police flatten US$1.25 million worth of bitcoin-mining machines with steamroller
While other Asian governments have been wary of cryptocurrencies from the start, they do seem to be embracing digital currencies backed by their central banks. These central bank digital currencies (CBDCs) are tokens, sometimes based on a blockchain, that represent the country’s national currency.
In 2021, China became the first major economy to create its own digital currency. The e-CNY, or digital yuan, had been used in more than 360 million transactions worth more than 100 billion yuan (US$14.4 billion) as of August 31 last year.

The e-CNY is not just another cryptocurrency. Here’s why

Digital currencies are also gaining traction in Nigeria. According to the Statista Global Consumer Survey, almost a third of Nigerians said they used or owned cryptocurrency, the highest rate in the world. There were 1.1 million cryptocurrency trades per month on the Paxful platform in 2020.

Nigeria launched its CBDC, the eNaira, in October 2021, becoming the first African nation to do so. Since it has the same value as the physical naira, the eNaira’s value will rise or fall in relation to the dollar in the same way as the paper currency. It is therefore unlikely to be as volatile as bitcoin.

A large part of the eNaira’s appeal lies in its practicality, especially for the Nigerian diaspora. An International Monetary Fund report on the eNaira found that the digital currency cost virtually nothing to transfer between wallets. This could help make it a preferred choice over the high cost of international money transfers, which is especially helpful for the Nigerian diaspora as it translates into significant savings.

A visitor displays a cup of coffee purchased with China’s digital yuan at an exhibition of the 6th Digital China Summit in Fuzhou, Fujian province, on April 26. Photo: Xinhua
Meanwhile, Singapore and Japan have been cautiously testing the digital currency waters. In February, Japan announced it would launch a pilot project to test the viability of the digital yen.
Singapore’s Project Ubin was a collaborative research initiative between the country’s monetary authority and the industry undertaken in phases over five years. It evaluated if blockchain and distributed ledger technology could be used for clearing and settlement of payments and securities. This would allow financial institutions and corporate investors to trade in tokenised digital currencies and securities assets, improve operational efficiency and reduce settlement risks.
Asian and African nations are leading the way in the development of digital currencies. However, the risk inherent in cashless economies is that they tend to be transparent to the point that privacy is utterly lost. Governments can track all of your purchases if they desire. Meanwhile, the threat of fraud and identity theft lurks in the shadows.

Nevertheless, the impact of digital currencies on African and Asian economies will be significant in the years ahead, helping to quell inflation and changing the future of not just monetary transactions but power balances in the world as we know it.

Kamala Thiagarajan is a freelance journalist based in Madurai, southern India