When you think of Bitcoin, do you think of wild antelopes, remote living and harvesting yuca? Me neither. But it seems the most rural and technologically under-developed places have a natural tendency to drift towards the cryptocurrency.
The Central African Republic (CAR) announced on April 27 that Bitcoin will be adopted as legal tender, making it an official currency of the landlocked country in the middle of Africa. The cryptocurrency will now be accepted alongside the CFA franc which, as a former French colony, is backed by France.
They are, however, not the first to claim this title. In June 2021, El Salvador made Bitcoin legal tender in what is dubbed as the Bitcoin Law. You may assume that the Central African Republic is following suit in the hope of achieving the same success, but that would be to mischaracterise El Salvador’s situation quite a bit.
In fact, the adoption has not been an easy ride, especially for the many Salvadorans who have little to no knowledge of what Bitcoin actually is, let alone how to use it. Adding to this is the fact that 54 per cent of the population live without internet access (in CAR this number is even as high as 90 per cent), which seems like a clear obstacle. It does not come as a surprise, then, that many Salvadorans took to the streets to protest the move that was introduced by president Nayib Bukele.
Looking back at its history, El Salvador has many reasons to search for a boost for their economy. Historically speaking, civil war, high crime rates and a median income below the global average make it one of the poorest countries in the world. Geographically, the country is in constant danger of natural disasters such as hurricanes and earthquakes, and few natural resources can be found in its soil, which has resulted in an economy that relies mainly on coffee exports and its service industry.
For CAR, it is not looking any better: the country the size of France has endured many years of civil war and is constantly ranked among the world’s poorest and unhealthiest countries due to low income and low levels of development, despite their natural richness in resources such as crude oil, diamonds and minerals. Only slightly over one third of the population is literate.
So, what are countries like El Salvador and the Central African Republic hoping to achieve by introducing Bitcoin, considering their rather deprived economic situation?
First of all, the lower transaction costs of Bitcoin make it substantially easier for nationals living abroad to send money back to their families and relatives. President Bukele has argued it could potentially save El Salvador up to 400 million dollars in remittance fees each year and while this is impressive considering remittances makes up 23 per cent of El Salvador’s gross domestic product, the situation is a different one for CAR. According to data from the World Bank, the percentage of GDP that comes from personal remittances received is zero.
One of the most important reasons for El Salvador to adopt Bitcoin had been its decades-long reliance on the dollar. Research about the consequences of different currencies for developing countries has concluded that channeling a foreign currency, such as the U.S. dollar, into a domestic market oftentimes contributes to the establishment of a grey or black market and can also in some cases intensify inflationary tendencies.
Since the dollarization of El Salvador, the local economy and the currency have been tied to the policies of the United States. In CAR, the CFA franc has always been “backed by France and pegged to the Euro” says law firm Baker McKenzie. This results in a loss of autonomy and the eventual reliance of the developing country on a foreign nation, its federal bank and the policies it embraces.
The idea now is that because cryptocurrencies are not tied to a specific institution, regulatory system or government, accepting it as legal tender allows the developing country to regain some independence when it comes to their own national economy.
However, looking at the impact a tweet by Elon Musk can have on the value of the ‘digital gold’, it makes one wonder if the foreign influence has simply been replaced by a different, mediated one. The volatility of Bitcoin remains a major problem when accepting it as legal tender.
It begs the question: is the Central African Republic, a nation with fewer than one fixed-line telephone connection per 100 persons, at a point where the adoption of Bitcoin will genuinely promote a change for their economy or whether the move has been made more for marketing and publicity reasons?