Crypto Adoption Around The World: Zambia

Current Economic Situation in Zambia

Zambia's economy has faced significant challenges in recent years. In 2021, the country experienced a recession with a 2.8% decline in GDP, followed by an estimated growth of 3.6% in 2022. Inflation has been a persistent issue, with rates reaching 15.7% 7in October 2024, driven by rising food prices and currency depreciation.

Unemployment remains high, particularly among the youth, contributing to widespread poverty. The Zambian kwacha has also experienced volatility, affecting import costs and overall economic stability.

The traditional financial system in Zambia faces several challenges, including limited access to banking services, especially in rural areas, and a high reliance on cash transactions. These factors hinder financial inclusion and economic growth.

To address these issues, the government is exploring digital financial technologies, including cryptocurrencies, to enhance financial inclusion and economic resilience.

Crypto Law in Zambia

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Zambia is in the process of developing a regulatory framework for cryptocurrencies, balancing innovation with financial stability. The government has expressed interest in exploring the potential of digital currencies while recognizing the risks involved.

In 2018, the Securities and Exchange Commission (SEC) issued a public notice cautioning investors about the risks associated with cryptocurrencies, as they were not regulated and could pose significant financial dangers. The SEC emphasized the need for awareness regarding the potential for fraud and the high volatility of cryptocurrency markets. 

The Bank of Zambia (BoZ) has also been cautious, stating that cryptocurrencies are not recognized as legal tender in Zambia. The BoZ has warned the public that any transactions involving cryptocurrencies are done at their own risk. 

Despite this, the central bank has acknowledged the potential benefits of blockchain technology and digital currencies for financial inclusion. In 2021, the BoZ began exploring the possibility of integrating a central bank digital currency (CBDC) into Zambia's financial ecosystem to provide an alternative to private cryptocurrencies. 

In 2023, in collaboration with the Bank of Zambia and the SEC, Zambia's Ministry of Technology and Science announced that it would start testing regulations and technological solutions for managing cryptocurrencies. 

The aim is to create a secure environment for digital financial innovations, enhancing financial inclusion and economic growth. This move highlights the government's commitment to integrating digital technologies into the financial system while ensuring that the necessary safeguards are in place to protect consumers and investors. 

Factors Driving Cryptocurrency Adoption

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Several factors are driving the adoption of cryptocurrency in Zambia. They are:

Economic Factors

Zambia's economy has struggled with persistent inflation and currency devaluation, which have significantly impacted the purchasing power of the local currency, the kwacha. In October 2024, inflation in Zambia reached 15.7%, driven largely by rising food prices and currency depreciation. 

The Zambian kwacha has seen a significant decline against major currencies, making it less reliable as a store of value. As a result, many Zambians have turned to cryptocurrencies like Bitcoin and stablecoins as alternatives to protect their savings from inflation. 

These digital currencies are increasingly seen as a way to preserve value and hedge against the volatility of the local currency. Cryptocurrency offers an easy way to store wealth and make international transactions without relying on the fluctuating value of the kwacha.

Demographics and Technological Trends

Zambia has a young population, with nearly 48% of its people under the age of 14. This youthful demographic is more likely to embrace digital technologies, including cryptocurrencies. The high level of smartphone penetration in Zambia is another crucial factor driving cryptocurrency adoption. 

According to Zambia Information and Communications Technology Authority data, mobile phone usage has significantly increased in recent years, and mobile internet access is becoming more widespread. 

This is creating a foundation for the adoption of digital financial services. With growing access to mobile money services like Airtel Money and MTN Mobile Money, Zambians are becoming more comfortable with digital transactions, making cryptocurrency adoption easier.

Peer-to-Peer Adoption Trends

One of the most significant trends driving cryptocurrency adoption in Zambia is peer-to-peer (P2P) trading. With limited access to traditional banking services, especially in rural areas, many Zambians are using platforms like Paxful, and Binance P2P to trade cryptocurrencies directly with others. 

These platforms facilitate seamless buying and selling of cryptocurrencies without the need for intermediaries like banks. P2P platforms allow individuals to bypass the formal banking system, making it easier for people in rural or underserved regions to access digital currencies. 

This has led to increased participation in cryptocurrency markets as a way to conduct transactions, send remittances, and protect against currency fluctuations.

Cryptocurrency Usage in Various Sectors In Zambia

Cryptocurrency and blockchain technology are gradually finding applications across different sectors in Zambia, addressing long-standing issues such as:

Payments and Remittances

In Zambia, limited banking access, especially in rural areas, has led many people to use cryptocurrencies for transactions and remittances. Platforms like Binance P2P and LocalBitcoins allow Zambians to send and receive money without relying on traditional banks. 

Cryptocurrencies also provide a cheaper way to make cross-border payments. While remittance services charge fees from 7% to 20%, cryptocurrency transactions cost much less. This is particularly important in Zambia, where remittances from the diaspora are a key source of income for many households and contribute significantly to the local economy.

Investment and Trading

Zambians are increasingly investing in and trading cryptocurrencies on platforms like Binance and LocalBitcoins to diversify their portfolios and protect against the depreciation of the local currency, the kwacha. The volatility of the kwacha has led many to look for alternatives like Bitcoin and Ethereum. 

Cryptocurrency exchanges and platforms offer opportunities for users to buy, sell, and hold digital assets, which is driving more interest in crypto investments. Although the market is still new, it is expected to grow as more people become aware of and comfortable with digital currencies.

E-commerce 

Some businesses in Zambia are beginning to accept cryptocurrencies as a form of payment for goods and services. This is particularly evident in the tech and online retail sectors, where merchants recognize the benefits of faster transactions and reduced fees associated with digital currencies. 

ZinariPay is a crypto payment gateway in Zambia. It offers a seamless solution for businesses to integrate cryptocurrency payments, providing more payment options for customers and attracting a tech-savvy customer base

Challenges Facing Crypto Adoption in Zambia

Cryptocurrency adoption in Zambia faces several significant challenges:

Regulatory Uncertainty and Legal Risks

The lack of clear regulations creates uncertainty for people and businesses interested in cryptocurrencies. The Bank of Zambia (BoZ) has warned about the risks of digital currencies, stating that they are not legal tender and advising the public about potential financial losses

This absence of formal regulations discourages investment and slows the growth of cryptocurrency-related services.

Technical and Infrastructural Barriers

Limited internet penetration and inadequate technological infrastructure pose significant obstacles. As of 2023, Zambia's internet penetration rate was approximately 21.2%, indicating that a large portion of the population lacks access to online services necessary for cryptocurrency transactions.

Additionally, the country's financial infrastructure is not fully equipped to support digital currency operations, leading to challenges in integrating cryptocurrencies into existing payment systems.

Lack of Awareness and Trust Among the Population

Many Zambians are unfamiliar with cryptocurrencies and their potential benefits. A study highlighted that a significant number of Micro, Small, and Medium Enterprises (MSMEs) in Lusaka have not adopted digital currencies due to a lack of understanding and regulatory support.

This limited awareness, coupled with concerns about security and the volatility of digital currencies, contributes to skepticism and reluctance to engage with cryptocurrencies.

Cryptocurrencies present significant opportunities for Zambia, particularly in enhancing financial inclusion, stimulating economic growth, and creating employment.

In 2021, Zambia's GDP growth rate of 3.6% marked a positive recovery after a recession, signaling the potential for economic transformation through digital finance.

The Potential for Cryptocurrency in Zambia

Cryptocurrencies offer significant potential to address various challenges and drive economic growth in Zambia, they include:

Opportunities for Financial Inclusion

A substantial portion of Zambia's population lacks access to traditional banking services. Cryptocurrencies can bridge this gap by providing digital financial services to the unbanked. 

The Zambian government recognizes this potential; in February 2023, Minister of Technology and Science, Felix Mutati stated that through digital payment platforms, people will become much more included in digital financial services, with cryptocurrency acting as a driver for financial inclusion and a change-maker for Zambia’s economy.

Potential for Economic Growth and Job Creation

The adoption of cryptocurrencies and blockchain technology can stimulate economic growth and generate employment opportunities in Zambia through the following:

• Blockchain Development: The demand for blockchain developers and related professionals is increasing globally. By investing in education and training, Zambia can cultivate a skilled workforce to meet this demand, fostering job creation.
• Entrepreneurship: Cryptocurrencies enable new business models, such as decentralized finance (DeFi) platforms and crypto-based startups, which can drive innovation and economic diversification.
• Investment Attraction: A clear regulatory framework for cryptocurrencies can attract foreign investment, as investors seek stable environments for their ventures. This influx of capital can further stimulate economic growth

The Future of Cryptocurrency in Zambia

The future of cryptocurrency in Zambia holds significant potential for financial inclusion, economic growth, and technological innovation.

Increased Adoption

Cryptocurrency adoption in Zambia is poised to grow significantly as awareness about digital currencies continues to expand globally. Locally, the demand for more efficient financial services, such as affordable remittances and borderless transactions, is encouraging individuals and businesses to explore cryptocurrencies. 

Platforms like Binance have seen a substantial increase in P2P users across Africa, including Zambia. Despite regulatory challenges, Binance recorded a 2228.21% increase in P2P users on the platform and a 386.93% increase in P2P volumes across Africa. 

This growth is partly driven by the inefficiencies in traditional financial services, which are often costly and inaccessible to many Zambians, especially in rural regions. By embracing digital currencies, individuals and small businesses are finding alternatives that allow them to connect to the global digital economy seamlessly.

Development of Regulatory Framework

The government of Zambia is currently in the process of establishing a formal regulatory structure for cryptocurrencies. In February 2023, the Bank of Zambia (BoZ) and the Securities and Exchange Commission (SEC) publicized their proposals concerning a regulation that tackles the issues of client protection, anti-money laundering, and transparency of operations about businesses involved in crypto.

These guidelines for operators in the virtual currency space are expected to be used in exchanges, wallet providers among other businesses operating within the crypto space. Importantly, BoZ has also involved the stakeholders in regulatory consultative meetings to ensure that the regulatory framework fits into the overall developmental agenda of Zambia.

Technological Advancements

Blockchain technology, the backbone of cryptocurrency, is gradually being integrated into various sectors in Zambia to address specific challenges. In agriculture, blockchain solutions are being piloted to ensure product traceability and combat fraud in the supply chain. 

For instance, discussions are ongoing between local agricultural cooperatives and blockchain service providers to track the distribution of subsidized farming inputs. In healthcare, the use of blockchain is being explored to create tamper-proof medical records, to improve patient care and data security.

Conclusion

The adoption of cryptocurrency in Zambia represents more than just a shift in how people store and exchange value; it signifies a pathway to financial inclusion and economic empowerment. As the nation grapples with challenges like inflation, currency instability, and limited access to traditional banking, digital currencies offer a new avenue to bridge the gap. 

With the government taking steps to create a regulatory framework and private sector innovation on the rise, Zambia has a unique opportunity to leverage blockchain technology and cryptocurrencies to solve pressing societal and economic issues.

Cryptocurrency is not just about money; it's about rewriting the financial narrative and making economic progress accessible to all.