on july 26, the central african republic (car) froze the application of its law by adopting bitcoin as its official currency alongside its local currency, the central african cfa franc, until the bank of central african states (beac) issues regulations to cryptocurrency throughout the central African economic and monetary community (cemac).
Bitcoin Adoption Sparks Regional Backlash
The automobile presidency announced that the country would adopt bitcoin on April 27.
Reading: Bitcoin in central african republic
The move sparked a backlash from the region’s central bank, the Beac, which administers the Central African CFA franc, which is used by six countries: Cameroon, the Central African Republic, Chad, the Republic of the Congo, Gabon and Equatorial Guinea. .
In response to the move, beac released a statement declaring that the car’s adoption of the new cryptocurrency law was “null and void” and violated regional bloc principles.
“This law suggests that the car aims to establish a currency that competes with the Central African Central Bank and the CFA franc or seeks to replace it,” the statement says.
The IMF also raised concerns about the car decision, protesting that the move was taken without consulting the regional economic union, the Central African Economic and Monetary Community (CEMAC).
The adoption “poses significant legal, transparency, and economic policy challenges,” the IMF said, adding that they are helping the region and auto authorities address concerns raised by the new law.
what would adoption mean for the central african republic?
The adoption of the law would mean that bitcoin must be accepted as payment alongside existing currency.
Speaking to Reuters, Obed Namsio, President Faustin-Archange Touadera’s chief of staff, insisted that the law “would improve the conditions of Central African citizens” and described it as “a decisive step towards opening up new opportunities for our country.”
but many were puzzled by the country’s decision. The automobile is one of the poorest countries on the continent, ranking 188th in the UN’s 2021 Human Development Index ranking, with a per capita gross national income of just $993. Technological barriers to widespread adoption are huge.
Only one other country, El Salvador, has made bitcoin legal tender, promising it would help boost the nation’s economy. but despite the launch of an app and incentives to sign up, uptake has been very low.
Bitcoin exists on a shared ledger over a global network of computers and relies on a fast, reliable internet and widespread access to computers or smartphones.
But internet penetration among the 4.8 million people who travel by car stood at just 14% in January 2020, according to a data report, while only 14% of the population have access to electricity, mainly in the capital, bangui, and access is almost completely absent in rural areas, sustainable energy for all says.
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That raises questions about whether a significant proportion of the population will be able to send or receive bitcoin as an alternative currency for the foreseeable future.
At the same time, critics fear that the adoption of a currency that is not controlled by any central authority opens the door to illegal money transfers. this would affect not just the car, but all countries that use the Central African CFA franc and would be a boon to money launderers based in the region (see below).
The move may be related to moscow’s growing influence in the automobile, where mercenaries from a russian private security outfit with ties to vladimir putin’s wagner group allowed the government to gain the upper hand against rebels and helped protect president faustin-archange touadéra against a coup attempt.
in fact, for ronak gopaldas, director of the risk management agency signal risk, it may be the logical explanation for a decision he otherwise considers “strange”.
“If this opens the way for the financial system to be more accessible to Russian companies, I think it makes a lot of sense, especially now that Russia is excluded from the conventional African banking system,” he told South Africa. radio702.
how would the adoption of bitcoin from the car affect the central african cfa franc?
Dealing a blow to the French-backed Central African CFA franc could be a reason for the auto government to lean towards Moscow.
The CFA franc, established by France as a colonial currency in 1945, continues to be used both by the CEMAC countries and by eight independent West African states grouped in the Economic and Monetary Union of West Africa (UEMOA).
Proponents of the CFA franc, which is pegged to the euro and whose convertibility is guaranteed by the French treasury, point to the macroeconomic stability and low inflation it brings to countries that use it. (The West and Central African versions are technically different coins but have the same value and similar relationships to the French treasury.)
However, opponents of the currency see it as a form of neo-colonial tutelage. France’s role as “guarantor” of the CFA franc has given it great power over its former colonies, whose monetary policies, far from being independent, have had to keep pace with France, and lately with the European Monetary Union.
In recent years, the currency’s existence has come under increasing popular anger as the perception has grown that it benefits France and local elites while slowing rather than contributing to the development of economies African. The steps taken by the UEMOA countries to loosen ties with the French treasury have not yet been followed by CEMAC.
the car’s decision to unilaterally adopt bitcoin would have altered the basic provisions of the agreements underpinning the central African brown franc, in particular, that the CFA franc should be the only legal tender in the region and that the beach controls money issuance and conversion. currency for the entire area.
“as soon as it has a market in a cemac member country that allows it to convert cfa francs (xaf) into cryptocurrencies, it will have a currency outflow mechanism parallel to the one controlled by beac”, an anonymous source at beac he told the French-language magazine jeune afrique. “So any CFA franc holder in the area can use it, whether they’re in the Central African Republic or not. this is the open door to all kinds of illegal currency inflows and outflows.”
under the treaty that establishes the monetary union, a country can be expelled for violating its fundamental principles, and it is currently believed that three of the other five cemac members are in favor of expelling the car if it does not row back in the move.
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This could be a direct advantage for the automobile president, Faustin-Archange Touadéra, whose plan to change the constitution to allow him to run for a third term is being opposed by France. French influence in the country would decrease while Russia’s position would be strengthened.
“This law is a way out of the CFA franc through a means that undermines the common currency,” declared former automobile prime minister and current opposition parliamentarian, martin ziguélé. “It is not a priority for the country. this move begs the question: who benefits?”
What advantages can the adoption of bitcoin bring to a country?
“there have been other countries that have moved in the same direction to adopt bitcoin as legal tender and there are several advantages to using bitcoin instead of your own country’s currency, and the biggest one is that bitcoin is a inflation proof,” says blake harris, who runs a denver-based law firm that focuses on cryptocurrency law and asset protection.
“When a country is in charge of its own monetary policy, it could print money indefinitely, and by doing so, it weakens value. with bitcoin there would never be more than 21 million bitcoins, so this really helps preserve the value of your money and gives people more certainty than the money they are storing.”
The movement of the car makes it easier to transfer payments around the world, he adds.
“with bitcoin you can buy and send bitcoins anywhere in the world, and it gives them a little more advantage in the global competitive market to be able to transact business in a currency that is used all over the world.
“also with bitcoin, you really can’t lie about how much money you have. it’s all in the public accounting books.”
what would car adoption mean for bitcoin?
given the tiny car economy and the resistance the country has faced in its currency zone, the direct impact on bitcoin itself is likely to be negligible.
The currency continues to be volatile, with the price of a bitcoin falling from highs of over $60,000 in November 2021 to just over $21,000 in late July 2022.
But if the experiment worked and more countries explored the official adoption of bitcoin, it could add credibility to the digital currency, as the use of bitcoin has gone far beyond a niche community of merchants and businesses.
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“those with more money don’t like bitcoins. it’s a threat to their power,” harris says.
“however, due to its decentralized nature, it is going to be virtually impossible to stop bitcoin at this point because it can take down bitcoin computers in one country or continent and it will still survive in other countries.”
article updated july 26, 2022. additional reporting by david thomas and charles dietz.
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