El Salvador And Central African Republic, What Do These Two Unrelated Countries Share In Common?

Bitcoin comes to mind once the Central American country El Salvador is mentioned. This is because the country under the leadership of its President, Nayib Bukele, adopted the flagship cryptocurrency as a legal tender to be used alongside the US dollar which is its official currency. Bitcoin was elevated from a mere cryptocurrency and given legal status allowing it to be used to settle any monetary obligation including the payment of taxes.

The Central American country first announced in June last year that it would be introducing Bitcoin into its mainstream economic system. In a video broadcast, El Salvador’s President – President Nayib Bukele, announced that El Salvador was partnering with Strike, a digital wallet company, to build the country’s modern financial infrastructure using blockchain technology.

While the country’s move received and continues to receive major criticism from individuals and global bodies like the World Bank and the IMF, it was lauded by experts such as Nigel Green, the Chief Executive and founder of deVere Group, a financial services giant. He described El Salvador’s move as ground-breaking in terms of “greater” adoption of Bitcoin.  “El Salvador is making history with a bold jump into the future of money by officially recognizing Bitcoin as legal tender together with the US dollar,” he said. According to him, El Salvador’s reliance on the US dollar to complete transactions comes with its own set of, often very costly, problems. One of which is that the El Salvadoran government cannot print its own money and the economy cannot benefit from the US Federal Reserve’s money-printing agenda. Therefore, El Salvador must either borrow or earn the dollar it needs.

He went on to explain that countries that choose to adopt cryptocurrency as a legal tender, such as El Salvador, will have a currency that isn’t influenced by market conditions within their economy, nor directly from just one other country’s economy, adding that El Salvador’s adoption of Bitcoin could cut the cost of remittances, a major source of income for millions of people.

Since it adopted Bitcoin as a legal tender, El Salvador has gone ahead taking more steps, maybe in a bid to show the world that it knows what it is doing. In November last year during “Bitcoin Week” in El Salvador, the country’s President announced plans to build an entire city based on Bitcoin. According to him, the city would be known as “Bitcoin City.” The President explained that “Bitcoin city” will be located along the Gulf of Fonseca situated near a volcano. The idea is to make the volcano a source of power for Bitcoin mining. The government plans to provide energy for both Bitcoin mining activities and the city from the volcano, he said. 

Amid criticisms and dips, the country has continued with its plan for Bitcoin and has continued to add to its pile. It recently bought the dip, adding 500 Bitcoin to its reserves increasing its total reserve to 2,301 Bitcoin.

Well, today’s story isn’t entirely about El Salvador…

Everyone knows how cryptocurrencies are frowned upon by governments, especially in Africa. Countries like Nigeria have gone ahead to ban cryptocurrencies citing reasons such as money laundering and terrorism funding. But with all these, cryptocurrencies have continues to thrive within these countries. The tech-savvy population of the continent has found a solution in peer-to-peer transactions which gives it a loophole out of government-imposed restrictions.

Amid the aversion and restrictions on cryptocurrencies, an African country has taken the steps of El Salvador and adopted Bitcoin as a legal tender, making it the El Salvador of Africa. The African country and El Salvador, therefore, share adopting Bitcoin as a legal tender in common.

Last month, the Central African Republic (CAR) adopted Bitcoin as a legal tender after lawmakers by a unanimous vote, and President Faustin Archange Touadéra approved a law legalizing Bitcoin to be used as a legal tender alongside the CFA franc.

In a statement by the Minister of State and Director of Cabinet of the Presidency, Obed Namsio, he said that “This move puts the Central African Republic on the map of the most courageous and visionary countries in the world.”

As expected, the decision has received backlashes from individuals and financial bodies. The Bank of Central African States (BEAC), which manages the Central African CFA Franc common currency used by six countries: Cameroon, Central African Republic, Chad, Republic of Congo, Gabon, and Equatorial Guinea, spoke against the move in a statement.

“This law suggests CAR aims at establishing a currency competing with or aiming at replacing the Central Africa Central Bank and the Franc CFA,” the statement reads after being translated to English.

Like it did with El Salvador, the International Monetary Fund (IMF) raised concerns about the country’s decision and insisted that the decision was made without any consultation with the Central African Economic and Monetary Community (CEMAC). The IMF insists that the adoption “raises major legal, transparency, and economic policy challenges,” adding that the decision poses a huge risk for the entire nation.

Like in El Salvador, the Central African Republic’s adoption of Bitcoin as a legal tender means that Bitcoin MUST be accepted as a means of payment for goods and services – that it must be accepted as a means of fulfilling financial obligations within the shores of the country.

Obed Namsio, the Chief of Staff of President Faustin-Archange Touadera, believes that the decision “will improve the conditions of Central African citizens,” and that it is “a decisive step toward opening up new opportunities for our country”.

For us at Techbooky, the move raises quite some concerns. This is because the  Central African Republic is one of the poorest African nations (by 2020 GNI per capita, Atlas method, current US dollar, and current United Nations rankings). Apart from this internet penetration is another thing to be considered. According to a 2021 report by DataReportal, there were 557.1 thousand internet users in the country as of January 2021. This is a country with a population of 4.87 million people as of January 2021. Also, the report stated that internet penetration in the country stood at 11.4 percent in January 2021, which is very poor if you ask anyone.

Additionally, 140 thousand people were using social media in the country in the country as of January 2021. Between 2020 and 2021, social media users in the country grew by 20 thousand or 17 percent.

To use Bitcoin, a digital wallet is required. To access a digital wallet, a smartphone or an internet-enabled device is mandatory but with its poor numbers, how does the Central African Republic plan to deal with this challenge?

Another source of worry for us is that the country will have a poor adoption rate for Bitcoin. First off, many Central Africans lack an understanding of what Bitcoin is and how it works. With poor internet penetration and below average of the population using the internet, it seems that the country’s plan to increase financial inclusion and create new opportunities may be going down the road of failure.

El Salvador is still yet to meet its goals regarding Bitcoin and its economy, and this is a nation that is much more advanced in terms of internet penetration, smartphone usage, and what have you.

Let’s not talk about the present. The question is “in the future how many Central Africans will be able to send and receive Bitcoin?”

Another challenge that may come up is the issue of money laundering. The idea that Bitcoin is not controlled by any central authority may open the way for illegal monetary transfers. This will be highly detrimental to the Central African Republic and other countries that use the CFA franc.

If all goes well, Bitcoin may be the game-changer that could send the Central African Republic’s economy flying through the roof. It will also help to reduce or eradicate the aversion that other African governments have for Bitcoin. In the future, we may see other African governments adopt Bitcoin as a legal tender. Bitcoin could create new opportunities for the continent of Africa. This will also give Bitcoin credibility.

When the announcement of an African country started making waves, one would have expected it to be countries like Egypt, Nigeria, South Africa, or Kenya. This is because these countries are not only the richest in Africa, they also have the most internet penetration in the continent with most of their population very cryptocurrency-savvy and already using Bitcoin to carry out financial obligations.

Bitcoin has quite numerous advantages irrespective of the fact that it can be used to commit crimes such as money laundering, tax evasion and avoidance, terrorism funding, etc. For countries that decide to adopt Bitcoin as a legal tender, the cryptocurrency could help ensure faster and cheaper cross-border payments and remittances, lessen the financial inclusion gap, revamp the traditional banking and financial systems, provide more financial security for citizens, create more opportunities and actualize the dream of a cashless society.