Across much of the Global South, the rise of digital currencies is rapidly reshaping the financial landscape, placing unprecedented strain on traditional banking systems. While many commentators focus on the promise of innovation, inclusion, and efficiency, fewer confront the darker side: the risk that this disruption could accelerate the collapse of already fragile banking sectors, deepening financial instability, and undermining state control over monetary systems. This is not a hypothetical concern.
Banks are not just commercial entities, they are key pillars of national financial architecture.
In Nigeria, Africa’s largest economy, 35% of adults now report using digital currencies such as Bitcoin or Ethereum, one of the highest adoption rates globally (Statista, 2024). In El Salvador, the world’s first country to make Bitcoin legal tender, formal banks have seen a sharp decline in small-customer deposits, as citizens increasingly bypass traditional accounts in favor of mobile wallets.
The disruptive force of digital currencies is most visible in their ability to bypass banks entirely. In many low- and middle-income countries, banks have long suffered from public distrust, driven by corruption, poor customer service, and exclusionary practices. According to the World Bank, as of 2021, over 1.4 billion adults worldwide remain unbanked, with the highest concentrations in South Asia, Sub-Saharan Africa, and parts of Latin America. Into this vacuum step decentralized financial technologies, offering people the ability to save, transfer, and invest money without relying on intermediaries. The appeal is obvious: lower fees, faster transactions, and, crucially, liberation from systems seen as both inefficient and exploitative.
What is often overlooked is that banks are not just commercial entities; they are key pillars of national financial architecture. Banks pool deposits to finance lending, underpin payments infrastructure, and serve as conduits for monetary policy transmission. When customers abandon banks en masse for decentralized digital alternatives, these functions begin to erode.
A 2023 study by the Bank for International Settlements warns that large-scale shifts into crypto assets can reduce deposit bases, impair credit supply, and complicate liquidity management, particularly in smaller, less diversified banking systems. This is no abstract risk. In Nigeria, the central bank has imposed repeated restrictions on crypto transactions, citing concerns about monetary sovereignty and financial stability, but adoption continues to soar, largely outside regulatory reach.
Unchecked digital currency rise could push some states to the brink of financial collapse.
The Global South’s vulnerability is compounded by the fact that many local currencies are inherently weak, subject to inflation, and exchange rate volatility. When citizens lose faith in national money, they increasingly turn to dollarized or crypto-based alternatives. In Argentina, where inflation exceeded 140% year-on-year in 2024 (IMF, 2024), dollar-pegged stablecoins now circulate widely in everyday commerce, allowing people to escape peso devaluation. While this offers short-term relief, it comes at the cost of undermining central banks’ ability to manage local monetary policy. If a significant portion of domestic transactions occurs outside state-controlled currencies, the very levers of macroeconomic governance begin to break down.
There are, of course, undeniable benefits to the digital currency revolution, particularly for financial inclusion. Mobile money platforms like Kenya’s M-Pesa have transformed lives, bringing basic financial services to millions who were previously excluded. However, M-Pesa and similar systems operate largely within regulated frameworks, often in partnership with formal banks.
The rise of decentralized, unregulated crypto networks is an entirely different proposition. Here, the risks of volatility, fraud, and capital flight loom large. A 2023 report by Chainalysis found that crypto-related scams and hacks siphoned over $3.1 billion globally, with disproportionate impacts in emerging markets where consumer protections are weakest.
Policymakers in the Global South thus face a complex balancing act. On the one hand, they must harness the benefits of digital innovation to expand financial access and reduce costs. On the other hand, they must safeguard the stability of formal banking systems and retain monetary sovereignty. Heavy-handed crackdowns risk pushing crypto activity further underground, while laissez-faire approaches could hollow out formal finance altogether.
Dollar-pegged stablecoins now circulate widely in Argentina, offering relief but undermining monetary policy.
The path forward demands thoughtful regulation: frameworks that integrate digital currencies into the broader financial system without allowing them to undermine it. This includes establishing clear legal status for crypto assets, enforcing anti-money laundering standards, protecting consumers, and ensuring interoperability between traditional and digital finance.
The stakes could not be higher. In the Global South, where banking systems are already under pressure from external debt, currency fragility, and political instability, the unchecked rise of digital currencies could push some states to the brink of financial collapse. Yet, if managed wisely, this disruptive wave could also offer a historic opportunity to build more inclusive, resilient, and efficient financial ecosystems. It is a race against time, and the winners will be those who understand that the future of finance cannot be simply inherited from the past.
Disclaimer: The opinions expressed in this article are solely those of the author. They do not represent the views, beliefs, or policies of the Stratheia.
