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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.