COMMENT: Why Africa should go cashless

Of course, none of this will be easy – a point made clear by India’s challenging experience implementing its radical demonetisation process. Success will require, among other things, a gradual approach. Africa must not allow cash scarcity to cripple the informal economy, as it has in India.

But if Africa succeeds in this transition, the benefits will be profound. Demonetization would probably even save countries money. MasterCard estimates that countries worldwide spend as much as 1% of their GDP each year to mint, process, and distribute banknotes. That is money that could be better spent on meeting the United Nations Sustainable Development Goals, further improving the lives of Africa’s poor.

There is reason to believe that Africa can succeed in going cashless. Already, a large share of Africans uses digital payment systems like M-Pesa and EcoCash – precisely the types of innovative platforms that can play a pivotal role in the shift away from cash.

While hyperinflation is far from the ideal catalyst for such a shift, Zimbabwe’s experience proves that citizens can and will adapt to challenging circumstances. For example, some stores in the country will give credit to mobile money accounts in lieu of change.

But, to achieve a broader shift to a cashless Africa, progress toward monetary union will be essential for deepening economic integration across the continent. That, in turn, would foster a continent-wide digital financial services ecosystem capable of underwriting a massive expansion of intra-African trade – the quickest route to lifting people out of poverty.

Already, 14 countries in West and Central Africa share the CFA franc, which is pegged to the euro. And South Africa shares a monetary policy with Lesotho, Namibia, and Swaziland. We cannot stumble where the road is clear.

Africans are latecomers to the demonetisation movement. But we can use this to our advantage, by learning from countries that have already made the transition or are on the way. These include not just India, but also Denmark, Norway, and Sweden. We must view this as a strategic advantage in the much-needed structural transformation of the African economy.

With a smart strategy, underpinned by patience and commitment, Africa can build a cashless economy, with high levels of financial inclusion supporting economic prosperity and security. Before too long, buying a “Kofi broke man” – a roasted plantain with groundnuts – by the roadside in Ghana could be a cashless transaction, one that helps the vendor prosper in the present – and save for the future.

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Carl Manlan is an economist and Chief Operating Officer of the Ecobank Foundation. He is a 2016 Aspen New Voices Fellow.

Copyright: Project Syndicate, 2017.