Last Wednesday, the government of the Central African Republic announced that it was adopting bitcoin as its legal tender becoming only the second country in the world to do so, after El Salvador. I follow several leading commentators on cryptocurrencies on Twitter and the initial reaction I observed was one of excitement. Excitement particularly from bitcoin maximalists who consider it a win and a sign that more governments are beginning to “see the light”.
On a personal note I found the news unusually surprising. Given my crypto advocacy, this may come as a bit of a contradiction so I should explain myself. In November of last year, the Global Legal Research Directorate of the Library of Congress released a report on the regulation of cryptocurrency around the world. The Central African Republic was one of 23 African countries to impose a ban on crypto. For a sovereign state to go from being crypto skeptic to promoting crypto as currency within a few months naturally raises eyebrows.
Before I share my bit on this let me give you, the reader, some background information on the country. The first time I gave serious thought to it was when I was pondering the correct demonym for people from the CAR. Are they called Central African Republicans (which is quite a mouthful), or Central Africans (which might be indistinguishable from the term one might call people from Central Africa, a sub-region of Africa comprising over ten countries)? To satisfy your curiosity, it’s the latter.
Notre-Dame of Bangui — Central African Republic : mbrand85/Shutterstock
The CAR isn’t usually in the news for the right reasons. Although a resource-rich country, it is staggeringly poor. A 2016 report by Reuters noted that the CAR is the worst country in the world for young people to live in. It is the scene of an ongoing civil war and ranks 188 out of 189 on the Human Development Index with a score of 0.397. You get the picture.
Now to the big question: is the CAR’s adoption of bitcoin a win? My answer is: it depends on who you ask.
For fans of crypto, it is, — or more accurately, it appears to be — for reasons already explained. However, and this is probably my more cynical side (the Hyde to my Jekyll if you may), I have some reservations.
Traditional financial institutions none more prominent than the IMF have spouted the usual criticisms, warning that the CAR’s decision comes with “large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection”.
On any other day I would dismiss it as scaremongering. Except I don’t think it is in this case. Although its inflation rate is steady around 2.47 per cent, the CAR ranks low on other economic indices which casts doubt on how bitcoin would gain wide acceptance and use.
Chainalysis, the US blockchain firm that analyses crypto activity globally, has no data on crypto usage in the CAR due in part to the civil unrest in the country. Hence it’s really anyone’s guess as to exactly how many people currently conduct transactions in crypto although it would be safe to assume that the figure is infinitesimal.
The CAR is one of 6 African countries whose currency, the XAF, is pegged to the euro and backed by the treasury of France. Its announcement on bitcoin blindsided the Bank of Central African States (BEAC) — the regional body in charge of the XAF — who expressed in shock that they were only made aware of the announcement the same time as the public!
Bitcoin relies on the Internet for use and yet per 2019 statistics from WorldData , only one in three people own mobile phones with a meagre 4 per cent of Central Africans having access to the Internet. The figure is even lower for those in need of fast internet where the number drops to zero per cent.
Skeptics argue that for a country with a huge financial burden which is also dependent on foreign interventions, the risk of becoming ostracized by major international lending institutions coupled with the lack of a buoyant economic infrastructure means that bitcoin may create more problems than it sets out to solve. Questions are rightly being asked of the government’s priorities with fears that it may have put the cart before the horse.
There’s a bigger worry however that maximalists may not be looking at or if they are, are choosing to stay silent on which is that these two countries are for good or ill, the poster nations for bitcoin. Being the only ones so far to have experimented on it, the rest of the world is watching keenly to see how it unfolds. So far, the results don’t appear too promising.
By comparison with the CAR, around 50 per cent of El Salvador residents have access to the Internet. However, a recent Bloomberg study notes alarmingly that bitcoin is struggling to take root in El Salvador following its authorization last September. That month, bitcoin was disbursed to citizens via a government approved wallet, Chivo, which came with a $30 incentive to all users.
The study notes that “virtually no one has installed Chivo on their phone in 2022”. The reason? “The most important reason not to download the app, conditional on knowing about it, is that users prefer to use cash, which was followed by trust issues — respondents did not trust the system or bitcoin itself”.
Even El Salvador’s much hyped Bitcoin Bond is raising red flags among crypto enthusiasts with some advising that people pass on it due to its unsustainability, limited legal protection and an unsuitable issuer, among other issues.
Meanwhile, a BBC report suggests that the CAR’s move may well be a power play designed to undermine the CFA, just as France and Russia struggle to gain a strong foothold in a country with an abundance of precious natural resources. Given the historical scramble for Africa, that explanation doesn’t appear implausible.
Despite my concerns, a part of me hopes this project succeeds as it may well be the story that erodes anti-crypto sentiment across governments in Africa. Already, Nigel Green, the CEO of the deVere Group — one of the world’s largest independent financial advisories — has predicted that Tanzania is on track to become the next African country to adopt bitcoin as legal tender. I’ll be following that prediction eagerly.
In a sense, it is fitting that the CAR’s President, Faustin-Archange Touadéra, is a double doctorate holder in mathematics. All eyes are on him now and his putatively calculated approach to bitcoin.
Will it work? We’ll see.
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