Dependence between bitcoin and African currencies
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Dependence between bitcoin and African currencies Saralees Nadarajah1 · Emmanuel Afuecheta2 · Stephen Chan3 Accepted: 1 October 2020 © Springer Nature B.V. 2020
Abstract Africa being one of the poorest continents is an ideal platform for the use of bitcoin. Considering the specific nature of the continent, is this digital currency going to be a propelling factor for its growth? In this paper, we investigate the correlation and dependence structure between bitcoin and eight African currencies using two different concepts, including extreme correlation plots and a bivariate extreme value model due to Gumbel (Bull Inst Int de Stat 37:471475, 1960). The currencies are chosen to correspond to eight biggest economies in Africa. We identify those African currencies having a positive correlation with bitcoin and those having a negative correlation with bitcoin. The dependence quantified can have economic implications. We perform a robustness study to see if the results hold also for parts of the data. We provide economic interpretations of the results which could be of interest to researchers, policy makers and bitcoin investors within the region and beyond. Keywords Correlation coefficient · Dependence coefficient · Gumbel
1 Introduction Bitcoin is the most popular cryptocurrency. It is a “decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries” (Wikipedia, 2020). Because of its nature, bitcoin is most suitable to the African continent. Maloumby-Baka and Kingombe (2015) suggest bitcoin as a tool for lowering high remittance costs to Africa. Nseke (2018) says bitcoin is an attractive transaction media for African countries because of low transaction cost, low level of entry, worldwide quickness, and anonymity of the transactions. * Saralees Nadarajah [email protected] Emmanuel Afuecheta [email protected] Stephen Chan [email protected] 1
Department of Mathematics, University of Manchester, Manchester M13 9PL, UK
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Department of Mathematics and Statistics, King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia
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Department of Mathematics and Statistics, American University of Sharjah, Sharjah, UAE
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Odero (2018) theorises a new cryptocurrency for the African continent, termed Afro-Pesa, claiming that it will have some effect in improving economic growth, enhancing the stability of the African financial system, lowering transactional costs, lowering currency risk, improving currency liquidity, and improving intra-Africa trade. Gomachas (2019) identifies potential benefits of bitcoin for the African continent may be due to “the macro-economic instability of African financial markets caused by hyperinflation; high rate of unbanked populations; and the need for an alternative currency to the weak; and sometimes unavailable and unreliable African fiat money”. Chishakwe (2016) provides further discussion on the us
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