How a digital currency could transform Africa

Here is a proposition: provide a secure and authentic digital identity for every person in Africa who wants one.
India has shown it is possible to achieve something similar at scale. Its Aadhar national identity scheme, launched in 2009, has registered 500m people using a number code and matching biometrics. It will improve service delivery – although it also strengthens the state in a way that tempts over-reach. Improving technology makes it possible to think more audaciously in Africa. Instead of just tagging a person – gathering their personal data – why not give them digital sovereignty?
Connectivity is already in place across the continent – with more than half of young Africans on smartphones – which means the era of big data is on its way. The question is who benefits and how.
Open source software now being developed, such as ID3’s Open Mustard Seed , is likely to be available within three years – and can be built as standard into every smartphone, tablet and wearable digital device. It will allow many of the poorest Africans to own their data through a highly secure “core identity”. That will make it harder for the state and companies such as Google and Facebook to scrape private data for their own ends.
One of the first results, we believe, will be to replace coins with a digital equivalent. At present, 99 per cent of low-value transactions in Africa are in cash. Within a decade, digital transactions will be standard, using devices such as electronic bangles, at almost no cost, in a virtual currency. Such currencies will be indexed to commodities and highly localised: not just one for Nairobi but, say, one for poor women’s savings clubs in Nairobi. All will work off a base currency reflecting the pan-African swagger of a rising continent. Its logo should be hefty; a pronking impala, perhaps.
An “impala revolution” will strengthen Africa as its population doubles by 2045 in a period of scarce jobs, expensive food and widespread destruction of nature. Optimistic scenarios have the average African living on $6 a day in 2030 compared with $1.20 today. Although a new middle class will benefit banks (or their disrupters), the continent’s economy will continue to be characterised by payments for a cabbage, a cigarette or use of a latrine. Coins are a blunt instrument for this: many are lost, many lose their value, they are expensive to mint. Mobile money schemes have rightly been praised but are already archaic, and better suited for paying school fees or church tithes than a banana. The average transaction in Kenya’s M-Pesa is more than $20.
By contrast, impala technology will raise standards of performance and transparency. It will help users build credit histories to secure micro loans for school, health and housing. Governments and aid agencies using their own versions of it will have verifiable means of disbursing their resources accurately and cheaply.
Indeed, just as some governments are promising their citizens laptops and tablets, so they might consider subsidising next-generation wearable devices for those without bank accounts. Since virtual transactions will happen mostly in the informal sector, these governments will lose little by setting a tax-free ceiling of a few dollars’ spending a day for each user.
We would like to see an agreement announced at Davos in January for the first impala to come into use in Somaliland. The formerly British part of Somalia is a good place to start. The regulatory environment is liberal, its money transfer and telecoms companies are capable and supportive, and aid agencies urgently need to distribute large amounts of cash efficiently.
Best of all, it already has a peculiar currency. The Somaliland shilling has continued despite a lack of recognition for the self-declared republic as a sovereign state. It was willed into existence 20 years ago as a currency for low-value transactions. A digital equivalent, the first impala, will be more secure, more stable and more transparent.

Jonathan Ledgard and John Clippinger are, respectively, a director of Future Africa at the Swiss Federal Institute of Technology in Lausanne; and a senior scientist at MIT’s Human Dynamics Group and chief executive of ID3

Fonte: FT