Cryptocurrency and African fiat currencies: A peaceful coexistence?

Abstract

AbstractThis study examines the asymmetric behaviour of Bitcoin relative to six major African fiat currencies (Egyptian Pound, Cedi, ZAR, Naira, Rupee and Dinar) for the period 10 August 2015 to 31 December 2022. The time and frequency information in the time series of the currencies were captured applying the ensemble empirical mode decomposition. The quantile regression (QR) and quantile‐in‐quantile regression (QQR) were applied on the decomposed series to examine the connections among the currencies at different currency regimes across time. The empirical results show that both QR and QQR can adequately capture the time‐varying asymmetric behaviour of the currencies across time. The results range from weak to very strong dependencies albeit both negative and positive across different quantiles. Our findings suggest that except for ZAR, Bitcoin is a viable alternative currency to African reserve currencies from the medium‐term since it can hedge depreciation and forex risk of the fiat currencies. Based on the findings of this study, we recommend that forex traders and policymakers in Africa should adopt Bitcoin as an alternative currency to African currencies in the medium‐term to mitigate currency crises in the continent.