Imagine a landlocked, coup-prone country where armed groups control much of the territory outside the small capital and where people survive on an average income of $493 a year. What steps would you take to improve the lot of your longtime citizens, most of whom are peasants? Improve the education system, build rural roads, distribute fertilizer?
If making bitcoin legal tender was your answer, you are clearly in line with the times. Last month, Faustin-Archange Touadéra, president of the Central African Republic, announced that his country would become the second in the world after El Salvador to adopt the seesaw cryptocurrency as its currency of the realm.
The 65-year-old president, who holds a doctorate in mathematics, said the adoption of bitcoin would “improve conditions” for citizens and put CAR “on the map of the world’s boldest and most visionary countries.”
Never mind the opposition critics – the fiat currency flat-Earthers, of course – who have warned that the adoption of bitcoin could sour relations with international institutions, as well as facilitate money laundering and tax evasion. In any case, the proportion of country taxes to gross domestic product is less than 10%. How low do these naysayers think it could go?
It’s easy to scoff at the change in a country where 85% of people don’t have access to the internet or electricity. Even with bitcoin’s deflated rate of roughly $30,000 — less than half of last November’s peak — the average person in CAR would take nearly 60 years to buy a single currency.
The El Salvador experiment hasn’t exactly paved the way. Few Salvadorans appear to have used bitcoin – which is more of an asset than a medium of exchange – either to send remittances home or to transact. The Salvadoran government spent $103 million on 2,301 bitcoins, according to Bloomberg, although they have fallen by more than 40% since the country’s first purchase. A purported $1 billion bond (the proceeds of which were earmarked for a volcano-powered cryptocurrency mining center and to buy even more bitcoin) has been delayed for some inexplicable reason.
The new direction of CAR has more to do with geopolitics than economics. Before bitcoin, the only official currency of the former French colony of Ubangi-Shari was the CFA franc, a flavor of colonialism that is used in six Central African and eight West African nations. (El Salvador’s other currency is the US “gringo” dollar.)
The CFA franc is pegged to the euro and guaranteed by France. While this has brought a degree of macroeconomic stability, it has come at the expense of monetary independence. Many in the region resent this. In 2017, Kemi Seba, a Senegalese activist, set fire to a 5,000 CFA note (about US$8.20), a defiant gesture that earned him a day in court along with the man who handed him the lighter. Try doing this with a cryptocurrency.
Hippolyte Fofack, chief economist at the African Export-Import Bank, sees the CFA as a plan to keep African currencies artificially high. While that caters to foreign companies looking to extract profits and local elites who like to shop in European capitals, he says, it stifles industrialization by making exports uncompetitive.
Fofack hails CAR’s bitcoin foray as a way to undermine the CFA franc, a move that Chris Maurice, chief executive of cryptocurrency exchange Yellow Card, called “a big middle finger for the French economic system.”
If CAR is pushing France away, it’s giving its new Russian friends a look here. Touadéra owes his presidency to Russian mercenaries from the Wagner group who in 2020 helped repel a rebel army trying to overthrow him.
This comes at a cost. In addition to committing human rights abuses, Russian agents are accused of running a gold mine and even collecting taxes at the border. Russia denies that its “advisers” are involved in military or commercial activities. Still, if they were, bitcoin could plausibly facilitate the movement of money in and out of the country or circumvent sanctions imposed after Russia’s invasion of Ukraine.
Whatever CAR’s motives, the idea may well catch on. Central and West African youth, who have little confidence in their governments and few opportunities to earn good money, have been drawn like moths to the flame of cryptocurrencies. The cryptocurrency became so popular in Nigeria that the central bank banned it – only to launch Africa’s first digital currency, eNaira, last October. You could call it bitcoin FOMO.