Renewed Hope: How Bitcoin And Green Energy Can Save Ethiopias Economy – Forbes

The future headquarters of the Commercial Bank of Ethiopia CBE in Addis Ababa, Ethiopia.

Selamawit Girma, a mother of three living in Ethiopias capital Addis Ababa, is worried.

Her monthly salary of 4,000 birr (about $91) isnt going as far as it used to. Inflation surpassed 20% in Ethiopia last year and its still risingup to 24.5% in Juneas the country struggles to contain the economic fall-out of the covid-19 pandemic.

"I am very scared of the current cost [of things], she told The Addis Standard.

I am afraid of being on the streets with my children. Prices are increasing in house rent, transport, foods and non-food items which the government seems to be doing very little about."

Its not for want of trying. Ethiopia has one of the most stable and diverse economies in Africa, benefiting from a forward-looking government that has consistently met development targets for its 117 million citizens. The number of Ethiopians living below the poverty line has more than halved since 2000.

Yet, whatever strides are taken domestically, Ethiopia exists within a global financial order that puts the US dollarthe worlds only reserve currencyat its apex.

Supply of these dollars is determined solely by the US Federal Reserve, which has a mandate solely to protect US economic interests.

And while printing trillions of dollars to stimulate demand seems to be helping Americain the short-term, at leastthe practice is having a devastating impact on poorer nations whose currencies are directly or indirectly pegged to USD.

The Fed is tasked with solving US monetary problems and not [those of] other countries, explained a spokesman for Project Mano, an Ethiopian lobby group that wants Addis Ababa to consider whether bitcoina decentralized cryptocurrency with a fixed supplycan break the inflationary cycle.

It is our problem, because we rely on another countrys monetary policy. They dont do it out of spite or to hurt us It's our own choice to hold dollars.

Understanding how ultra-loose monetary policies in the West can hurt developing nations isnt difficult.

The National Bank of Ethiopia currently holds about $3bn worth of foreign exchange reservesthe vast majority of which is in USD.

These holdings dont increase proportionally as the Fed prints more and more money, so their real valueor their purchasing poweris gradually eroded by inflation.

At the same time, Ethiopias government is overseeing the steady devaluation of its own currency, the birr, in an effort to stop the countrys $12bn trade deficit from growing any larger. (Devaluing a currency makes domestically produced goods more affordable on the international stage, thereby driving exports and helping to balance the books.)

Taken in isolation, each of these trends would be manageable.

But when the value of a countrys domestic currency and the value of its foreign reserves fall in tandem, there is a real and present danger of economic meltdown. Ethiopia must preserve the value of its USD holdingsor an equivalent reserve currencyin order to shield itself from hyperinflation at home.

And its getting much harder to do thatnot just because of the Feds endless money-printing, but also the fact that Ethiopian Airlines, one of the countrys main earners of foreign currency, is facing an uncertain future thanks to covid-19.

With Ethiopias GDP rate now growing four times slower than its inflation rate, the country is staring default down the barrel of a gun.

So, what to do about it?

It could simply buy more dollars. Thats Chinas approach: more than half of its $3.2tr worth of foreign exchange reserves is believed to be USD, which it uses to manipulate the USD/CNY exchange rate and keep exports rolling off the shelves.

Trouble is, developing nations like Ethiopia cant afford to stack trillions of dollars.

That leaves three options: hope that America will stop debasing the worlds reserve currency; find new, reliable sources of USD; or, diversify the states holdings beyond dollarspreferably by acquiring an asset with a fixed supply that cannot be manipulated by foreign governments. Enter bitcoin.

Adoption of bitcoin or cryptocurrency in general is scary for any government, but our project mainly aims at exploring solutions to solve forex issues the government might be facing, Project Mano asserted. Since everything else they hold grows in supplyincluding goldwe are suggesting [they find] something that doesnt grow, as an experiment.

Project Manos long-term vision encompasses three spheres: mining bitcoin; holding bitcoin; and linking bitcoin to the birr.

The latter two would, in theory, solve the problem of a depreciating reserve currencybut only if bitcoin fulfills its promise and matures into a globally recognized asset class. That, the lobbyists admit, will be seen as a gamble by the government.

A safer bet is their proposal to mine and monetize bitcoinparticularly given Ethiopias unique energy landscape and developmental status.

The East African country has abundant supplies of renewable energy: 90% of its electricity is already powered by domestic hydroelectric plants, with the remainder largely coming from wind, solar and geothermal sources.

Thats just a fraction of its future potential. The government hopes to grow renewable generation capacity fivefold to 25,000 megawatts (MW) by 2037, of which 6,500MW will come from one flagship project: the Grand Ethiopian Renaissance Dam (GERD), situated in the Blue Nile River.

The Grand Ethiopian Renaissance Dam (GERD), a 145-metre-high, 1.8-kilometre-long concrete colossus, ... [+] is set to become the largest hydropower plant in Africa.

All told, the full potential of renewable projects under consideration in the country is estimated to be as high as 60,000MW.

And for ordinary Ethiopians, the stakes are even higher.

Success in the green energy sector is critically important from a developmental perspective, with just 48% of the population currently plugged into the grid.

Electricity exports have also been identified as a much-needed source of foreign income: Sudan and Djibouti paid $66m for Ethiopian energy in 2019.

However, rolling out infrastructure isnt a silver bullet in countries like Ethiopia. Price volatility, erratic demand and logistical challenges all muddy the waters, making it difficult for investors to predict returns and ultimately slowing the pace of progress.

Alex Gladstein, chief strategy officer at the Human Rights Foundation, explained the problemand a potential solutionin a recent essay for Bitcoin Magazine:

"Billions of people in developing nations face the stranded power problem. In order for their economies to grow, they have to expand their electrical infrastructure, a capital-intensive and complex undertaking. But when they build power plants to try and capture renewable energy in remote places, that power often has nowhere to go."

He continued: "Here is where bitcoin could be an incentives game-changer. New power plants, no matter how remote, can generate immediate revenue, even with no transmission lines, by directing their energy to the bitcoin network and turning sunlight, water or wind into money With bitcoin, any excess energy can be directed to mining until the communities around the plant catch up."

That, in a nutshell, is Project Manos most compelling proposal.

Its analysis suggests that just 5% of the GERDs generating power would yield 2,100BTC per year under prevailing network conditions. That amounts to an annual return of $70m at the time of writing, against one-off capital costs of $105m for the acquisition of 10,000 S19 ASIC bitcoin mining machines.

By contrast, it would cost Ethiopia an estimated $1.7bn to build the infrastructure needed to export GERD energy to its neighbors.

Crucially, theres no need for the government to either mine bitcoin itself, or carry any risk by holding it.

Even if Ethiopia doesnt start mining directly, it could be a good energy exporter to mining companies who will gladly help build infrastructure for shared earnings, Project Mano explained, noting Ethiopias low electricity charges for businesses ($0.02/kWh, versus $0.10 in Nigeria and $0.18 in Kenya).

It simply could sell power Cheap power, clean energy and supportive government policies are attractive for any miner.

The spokesman admitted that the GERD itself may not be the best poster child for bitcoin adoption in Ethiopia.

The project has been mired in controversy for years, with Egypt and Sudantwo downstream neighborsthreatening to retaliate if, as they fear, their water supplies are negatively impacted by the dam. Tensions rose again this month when it was confirmed that Ethiopia had begun the second filling of the reservoir.

However, the GERD is just one of countless renewable energy projects in the countryany of which would be less awkward avenues for the government to look into if they take us seriously.

And, besides, with Cairo and Khartoum now seeking a negotiated settlement, its not hard to imagine a bitcoin-sharing deal laying the matter to rest once and for alland with no direct cost to Addis Ababa.

Theres no denying that, today, bitcoin isnt a talking point for most Ethiopians.

But its also undeniably true that their economy is strugglingdue, at least partly, to monetary policies that are decided thousands of miles away from Africa, and without any regard for the welfare of its people.

Ethiopias government has an enviable track-record for embracing new technologies and promoting new ideas.

Its time for bitcoin to enter the political discourse in Addis Ababa.

All we are asking is that [the government consider] diversification into other, uncorrelated portfolios, Project Mano emphasized. If the US dollar falls harder than expected, having a plan B is not a bad idea.

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Renewed Hope: How Bitcoin And Green Energy Can Save Ethiopias Economy - Forbes