African leaders, on July 7, finally launched what is known as the world’s largest free-trade zone area. The economic bloc, meant to unite Africa’s 1.3 billion people under one market could consequently bring in $3.4 trillion in trade.
African Development Bank’s president Akinwumi Adesina has called for a digital system of payments to assist in the conversion of a country’s currency to the other. The AfDB president’s proposal has excited many Ripple enthusiasts in the continent.
Ripple’s xRapid could potentially form the backbone of the proposed digital payments network. The product builds a decentralized network that eases cross border payments. The real cost of cross border payments is brought about by liquidity problems. Banks have tied down trillions of dollars in pre-funded accounts to enable cross border currency exchanges. This loss of working capital has enormous costs.
Ripple and xRapid Could Power Inter-African Trade
With xRapid, the need to tie up these enormous amounts of money is eliminated. The platform sources on-demand liquidity through the use of XRP, Ripple’s native digital currency. XRP, in this case, acts as the trading bridge between two nation’s fiat currencies. The transactions that rely on xRapid are therefore low cost, faster and require no pre-funded accounts.
Without an efficient and affordable system in place to handle these remittances, Akinwumi said, the trading block would hit significant roadblocks. He accordingly, emphasized the need for the system before any trading on the bloc commences.
The Economic Community of West African States (ECOWAS) is already working on the AfDB president’s proposal. To this end, the nations have decided to adopt one trade currency to cut down on foreign exchange risks. With Ripple’s products, the West African nations would have a fantastic competitive edge.
As an illustration, Mercury FX, a cash remittance startup, is already using xRapid to lower costs of cross border remittances in sub-Saharan Africa. With offices in Hong Kong, London, and South Africa, Mercury FX is moving over $1.8 billion globally.
African Exchanges Can Be of Use
The swapping of native fiat currencies to XRP and back, however, requires the use of crypto exchanges. Ripple does not use just any exchange, but those that have implemented KYC controls and that adhere to regulations. Ripple, for instance, has collaborated with Bitso, Coins.ph and Bittrex exchanges as its “preferred digital asset exchanges.”
Similarly, established cryptocurrency exchanges supporting XRP can be of use. Of the many, Belfrics is a cryptocurrency exchange operating in countries like Singapore, Malaysia, Dubai, Indonesia, India, China, Kenya, and Nigeria. The West African States digital trading platform could potentially rely on Belfrics to enjoy xRapid’s cross border payments potential. This use case could also encourage the growth of more exchanges.
The World Bank’s Call
The World Bank has in a blog post proposed Distributed Ledger Technology as the answer to Africa’s costly cross border remittance problems. “Using DLT solutions could also bring down compliance costs and improve the transparency and traceability of transfers. This could help ease the impact of the de-risking phenomenon that has affected the remittance services industry over the past few years.
Increasing the transparency of transactions could increase the confidence of the banking sector in the remittances industry”, “the post said. They have also proposed Ripple as a possible solution, saying it did cut down remittance costs by 40-70 percent on the US-Mexico corridor.
The AfDB has given ECOWAS $4.8 million. The funds are to assist the trading bloc set up its headquarters in Ghana. If the continent’s free trade zone area succeeds, it will reduce trading tariffs by 90 percent amongst the members.
Adesina says that this will strengthen supply chains and encourage new markets. The African Continental Free Trade Area (AfCFTA) is viewed as the platform that will unlock the continent’s long stymied economic potential.