TechBullion is delighted to welcome Ndubuisi Obirije (John), Chief Technology Officer of Afriex, to share his insights on a critical topic shaping the future of finance in developing economies: The potential of stablecoins to combat currency volatility. With a wealth of experience as a two-time fintech founder and a Y-Combinator alumnus, John brings invaluable expertise to this discussion. His current role at Afriex, a blockchain-powered remittance platform facilitating seamless money transfers to over 15 African countries, positions him at the forefront of fintech innovation.
In this interview, John draws from his extensive background in digital transformation within the financial sector to explore how stablecoins can provide a viable solution to the challenges of currency volatility in developing economies, offering a stable and reliable alternative for both businesses and individuals.
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1: “John, from your extensive experience in leading digital transformation initiatives within the financial sector, can you elaborate on the specific challenges that currency volatility poses to developing economies? How does it impact businesses, individuals, and overall economic growth?”
Currency volatility in developing economies presents a formidable challenge with far-reaching consequences. Businesses, particularly those engaged in international trade, face uncertainty in pricing and profitability due to unpredictable exchange rate fluctuations. This can hinder investment and economic growth. Individuals also suffer as their savings and purchasing power erode, impacting their ability to plan for the future and meet basic needs. Moreover, currency volatility can exacerbate inflation, further destabilizing the economy and increasing the cost of living.
For example, consider the case of Argentina, which has experienced chronic currency volatility for decades. The Argentine peso has depreciated significantly against the US dollar, leading to soaring inflation rates. In 2023, Argentina’s inflation rate reached a staggering 114%, making it one of the highest in the world. This hyperinflationary environment has eroded the savings of millions of Argentinians and created economic hardship for businesses and individuals alike.
2: “Stablecoins have emerged as a potential solution to mitigate currency volatility. Could you explain in layman’s terms how stablecoins work and the mechanisms that ensure their price stability?”
Stablecoins are a type of cryptocurrency designed to maintain a stable value by pegging their price to a reserve asset, such as the US dollar or a basket of currencies. This is achieved through various mechanisms, including collateralization, algorithmic stabilization, or a combination of both. Collateralized stablecoins are backed by reserves of fiat currency or other assets held in custody, ensuring that each stablecoin in circulation is fully redeemable at its pegged value. Algorithmic stablecoins use smart contracts and algorithms to adjust supply and demand dynamically to maintain price stability.
The stability offered by stablecoins makes them an attractive alternative to volatile local currencies in developing economies. They provide a reliable store of value and a medium of exchange that is less susceptible to the fluctuations of traditional currencies.
3: “Your groundbreaking work in utilizing blockchain and stablecoin technology for remittance services has been widely acclaimed. Can you share specific examples of how stablecoins are already being used to combat currency volatility in developing economies?”
My work in leveraging blockchain and stablecoin technology for remittance services has demonstrated the real-world impact of stablecoins in combating currency volatility. In many African countries, the high cost and volatility of traditional remittance channels have long been a barrier to financial inclusion. By using stablecoins, we were able to significantly reduce transaction costs and processing times while ensuring that the value of remittances remained stable, even in the face of currency fluctuations.
For instance, in Nigeria, where the naira has experienced significant depreciation against the US dollar, stablecoins have emerged as a popular alternative for remittances. According to a report by Chainalysis, Nigeria received over $20 billion in cryptocurrency remittances in 2022, with stablecoins accounting for a significant portion of this volume. This highlights the growing demand for stable, low-cost remittance options in developing economies.
4: “Despite their potential, stablecoins face challenges in terms of adoption, particularly in developing economies. What are some of the key barriers to widespread adoption, and how can they be addressed?”
While stablecoins hold immense promise, several barriers hinder their widespread adoption in developing economies. These include:
- Lack of awareness and understanding: Many people in developing economies are unfamiliar with cryptocurrencies and stablecoins, leading to skepticism and hesitancy in adopting them;
- Limited access to technology and infrastructure: Internet connectivity and smartphone penetration remain challenges in many developing economies, hindering access to digital financial services and stablecoins;
- Regulatory uncertainty: The evolving regulatory landscape surrounding stablecoins creates uncertainty for businesses and individuals, discouraging adoption.
To overcome these barriers, concerted efforts are needed from various stakeholders. Governments and financial institutions should prioritize educational initiatives to increase awareness and understanding of stablecoins. Investments in digital infrastructure, such as expanding internet connectivity and promoting smartphone adoption, are crucial. Moreover, clear and consistent regulatory frameworks are essential to foster trust and confidence in stablecoins.
5: “Regulatory frameworks surrounding stablecoins are still evolving. What are the critical regulatory considerations that governments and financial institutions need to address to ensure the safe and effective use of stablecoins in developing economies?”
Regulators play a pivotal role in ensuring the safe and effective use of stablecoins in developing economies. Key regulatory considerations include:
- Consumer protection: Robust consumer protection measures are needed to safeguard users from fraud, scams, and other risks associated with stablecoins.
- Financial stability: Regulators must assess the potential systemic risks posed by stablecoins and implement appropriate safeguards to protect the financial system.
- Anti-money laundering (AML) and combating the financing of terrorism (CFT): Stringent AML/CFT regulations are crucial to prevent the misuse of stablecoins for illicit activities.
Striking the right balance between fostering innovation and mitigating risks is critical. Overly restrictive regulations could stifle the growth of stablecoins and hinder their potential benefits, while lax regulations could expose users and the financial system to undue risks.
6: “Looking ahead, what are the potential long-term implications of stablecoin adoption in developing economies? How might they reshape the financial landscape and contribute to greater financial inclusion?”
The long-term implications of stablecoin adoption in developing economies are profound. Stablecoins have the potential to reshape the financial landscape by:
- Enhancing financial inclusion: Stablecoins can provide access to financial services for the unbanked and underbanked populations in developing economies, empowering them to participate in the formal economy.
- Facilitating cross-border transactions: Stablecoins can streamline and reduce the cost of cross-border payments, boosting international trade and investment.
- Promoting economic growth: By providing a stable and reliable medium of exchange, stablecoins can contribute to greater economic stability and growth in developing economies.
The widespread adoption of stablecoins could lead to a more inclusive and efficient global financial system, where individuals and businesses in developing economies have greater access to financial services and opportunities.
7: “Based on your extensive experience, what advice would you give to policymakers, financial institutions, and entrepreneurs in developing economies who are considering integrating stablecoins into their financial systems?”
To policymakers, I would emphasize the importance of creating clear and consistent regulatory frameworks that foster innovation while mitigating risks. To financial institutions, I would encourage them to explore the potential benefits of integrating stablecoins into their service offerings, particularly in areas such as remittances and cross-border payments.
In my experience over the years, especially in Nigeria where my company Afriex has a big market, I have seen how poor regulatory decisions impact the financial and economic fabric of the country which ripples through financial institutions and the people.
To entrepreneurs, I would urge them to not give in or get discouraged when unfair regulations spring up, but instead fight to work with regulators and find a common ground. Because I believe we are just scratching the surface of the power of blockchain and stablecoin technology to develop innovative solutions that address the unique challenges faced by developing economies.
8: “Your work in leveraging financial technology for social impact is truly inspiring. Can you share your personal reflections on the transformative potential of stablecoins and how they can contribute to a more equitable and inclusive global financial system?”
In countries where cryptocurrency and stablecoins have been adopted and with Government backing, be it in the form of CBDC or fair regulations, there have been a new form of wealth creation for its masses, beyond just financial inclusion, but also flexibility and control of how they want to manage their money, low cost remittance and a sense of transparency and confidence in their local currency. I foresee more adoption in Africa, Latin America and Southeast Asia and I’m excited for the new innovative solutions that will spring up from brave and daring entrepreneurs from these places.
