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How DeFi Can Bridge the Forex Gap in Africa, According to Banking CEO

Canza Finance, a neobank, is utilizing decentralized finance (DeFi) technology to offer decentralized foreign exchange (FX) for African currencies, as highlighted by the CEO and co-founder, Pascal Ntsama IV.

The Canza website emphasizes the significant challenge many millions of individuals globally face in accessing financial services and products. In response to this, the neobank specializes in decentralized cross-border payments, utilizing DeFi and digital assets to address the existing financial service gap in emerging markets. This approach aims to provide a solution to the widespread difficulties associated with financial access.

Canza Finance introduced an additional service last year called Baki, which serves as a liquidity FX exchange for African currencies. The primary objective of Baki is to revolutionize African forex through transparent currency swaps and zTokens.

One notable advantage highlighted by Canza is Baki’s capability to provide infinite liquidity at the official conversion rate, addressing a significant challenge for businesses involved in intra-African trade networks.

CEO Ntsama explained to Cointelegraph that many Africans face difficulties accessing forex liquidity and currency swaps, limiting the use of US dollar-based services in countries dependent on imports. This situation creates opportunities for decentralized finance (DeFi) solutions to fill the gap.

DeFi To The Rescue

Decentralized finance (DeFi), harnessing the power of cryptocurrencies and blockchain technology, holds the potential to address numerous challenges faced by the African continent.

For Canza, its solution, Baki, plays a crucial role in alleviating some of these pain points. When individuals exchange local fiat currencies, funds typically exit Africa, leading to dollar value inflation. This process incurs currency slippage and increased costs. Baki, according to the CEO, enables users to engage in trading at official central bank prices and execute currency swaps without incurring losses. This functionality aims to optimize the efficiency of currency exchange and reduce associated costs for users.

In the context of FX swaps, where the agent typically assumes local currency risk, Baki plays a risk-reducing role. It achieves this by facilitating swaps between similar currencies at the official central bank rate, as explained by Ntsama.

This approach enables the agent to subsequently engage in swaps with the least slippage when entering US dollar positions.

Ntsama also addressed the situation in Nigeria, noting that even though the use of blockchain has been approved, it is not yet widespread. In response, he highlighted that Baki is designed to align with the current regulatory climate and leverage existing user behaviors to address challenges with blockchain technology. This adaptability allows the platform to navigate the existing regulatory landscape effectively.

African Hubs

African countries are showing a growing interest in cryptocurrencies and blockchain technology. Canza, for instance, is working towards establishing a hub for businesses to engage in foreign exchange (FX) trades at a reduced cost.

According to a recent CNBC report, Bitcoin (BTC) is increasingly becoming the preferred currency for facilitating money transfers between African nations. The report followed the inaugural Africa Bitcoin Conference in Ghana, where Jack Dorsey highlighted how BTC had compensated for funds lost during a previous street protest in Nigeria. This further underscores the rising prominence of Bitcoin in addressing financial challenges and facilitating cross-border transactions in the African context.

In early February 2023, Zambia’s Ministry of Technology and Science, in collaboration with the Security Exchange Commission and the Bank of Zambia, revealed plans to test technology for regulating cryptocurrencies. This move aligns with Zambia’s aspirations to become a regional hub, with Minister Felix Mutati expressing the belief that cryptocurrency will play a pivotal role in promoting financial inclusion and transforming Zambia’s economy.

Later in November, Ripple, a major player in crypto payments, entered into a partnership with fintech firm Onafriq. The collaboration aimed to facilitate crypto-enabled cross-border payments spanning 27 African countries and various global markets. This development underscores the growing interest and adoption of cryptocurrency and blockchain technology in the African financial landscape.

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