The Central African Republic adopts Bitcoin as legal tender
The IMF criticizes the move
The CAR's adoption of BTC will likely be successful, as was El Salvador's
The Central African Republic (CAR) has become the second country after El Salvador to adopt Bitcoin as its official currency, and the first in Africa to do so. BTC will become legal tender alongside the CFA franc after the country's lawmakers voted unanimously to legalize cryptocurrencies.
"This move places the Central African Republic on the map of the world's boldest and most visionary countries," CAR President Faustin Archange Touadera said.
Why the IMF is unhappy with the move
Financial institutions are understandably unhappy with the move. El Salvador's adoption of Bitcoin had been heavily criticized by the International Monetary Fund (IMF) last year, which cited "large risks associated with the use of Bitcoin on financial stability, financial integrity and consumer protection."
Asked during a briefing about what he thinks about the Central African Republic's decision and whether other countries interested in making such a move should consult the IMF for it, Abebe Aemro Selassie, Director of the IMF's Africa Department, mentioned that governments need to make considerations about adoption of central bank digital currencies, such as the eNaira rolled out by Nigeria, without directly answering Bitcoin adoption question, since that was the case for the CAR, not CBDCs.
“The point I would stress here is that I think it's really important to not see such things as a panacea for economic challenges our countries face. So as part of a well-structured, you know, move towards digitalization, towards using central bank regional currencies, rolling those out. I think it can contribute to a robust payment system, settlement system in our countries. But just adopting willy-nilly, the readiness to use Bitcoin is something that has to be looked at very, very carefully,” Selassie said.
It is clear from this response why the IMF railed against El Salvador, and will do the same for any country that wishes to jump onto the Bitcoin bandwagon – it is because they don't want it – they promote their alternative, which is CBDC.
Can the CAR replicate El Salvador's success story?
People were unsure how this would work in a poor country like El Salvador with a smaller population than New York City and the majority of the country without smartphones or internet access.
The citizens of the CAR are not faring any better, as only 12% have access to the internet, it is one of the poorest countries in the world, and nine years of civil war have ravaged the country.
It is currently argued by critics in the same way. Economist Intelligence Unit figures indicate that only 14% of Central African Republic residents have access to electricity. Fewer than half have a mobile phone connection.
"Given the enormous barriers to adoption and risks associated with use, and seemingly limited upsides, we do not expect widespread adoption of cryptocurrencies in the country," EIU analyst Nathan Hayes said.
However, there is some validity to the claims, since when El Salvador adopted Bitcoin as legal tender, there was a small, but growing crypto community, while the CAR people have relatively little knowledge of Bitcoin, and the country is plagued with many other pressing issues.
Still, this doesn't mean it cannot change. El Salvador's GDP grew 10.3% in 2021 for the first time in its history. Even with all the criticism it has received, the country seems to have chosen the right path with its Bitcoin policy, especially when you look at its quarterly percentage change of real GDP from Q1 2006 to Q4 2021.
Source: Central Reserve Bank of El Salvador
The Central African Republic might be able to embrace Bitcoin's future quite well. The CAR has an abundance of water resources, making it an ideal destination for future BTC mining operations. There are waterfalls in the country that generate hydroelectric power, and dams on the Mbali Lim River that supply about 80% of the country's electricity.
The CAR's economy is heavily reliant on exports, especially timber, diamonds, cotton, and coffee. The largest trade partner of the country is Belgium, which imports most of its diamonds. France also purchases a great deal of coffee and tobacco produced in the country. Saudi Arabia, Germany, and China are other relatively large trading partners.
What other countries may adopt BTC next?
The Central African Republic's official currency is the CFA Franc (XAF) managed by the Bank of Central African States (BEAC). Introduced as the currency of the French colonies in Africa in 1945, it is pegged to the euro and backed by the French treasury. The CFA Franc is used by five other countries in the Economic and Monetary Union of Central Africa: Cameroon, Chad, Republic of Congo, Equatorial Guinea, and Gabon. It may well be the case that these nations start considering integrating Bitcoin into their common financial system.
While it is unlikely that large-scale BTC transactions occur between the CAR and its major trade partners in Europe, Asia, and the Middle East, blockchain technology could provide a viable solution for digitizing supply chains between them.
We'll have to wait and see whether the Central African Republic's Bitcoin story will be as successful as El Salvador's. Bitcoin might be the only hope left for the country ravaged by poverty, civil war, political turmoil, and other issues, so it shouldn't be blamed for turning to it. Powerful nations try to impose their rules on weak countries like El Salvador and the CAR. The question is, how can they know what the root issue is? Could poverty be a root cause of the civil war and other social problems? What if Bitcoin helped people live better? Maybe it is the panacea they've been looking for? Why not allow them to try it? Nothing worse could really happen.
If the miracle occurs, and the CAR has anything like El Salvador's success, there will be no doubt that Bitcoin made the difference, and that El Salvador's success was no accident. It would also inspire other nations to follow suit. As a result, we could see the adoption of Bitcoin marching upward across the globe in a triumphant way.
P.S. This article first appeared on Invezz.