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In a major step towards global cryptocurrency acceptance, the Central African Republic has moved to adopt bitcoin as legal tender within the country - highlighting the rise of cryptocurrency usage throughout Africa. However, with questionable political ties and a lack of technological infrastructure, economists are skeptical about the ethics of the move.
Following in the footsteps of El Salvador, the Central African Republic has surpassed other major African cryptocurrency hubs like Nigeria and Kenya to become the continent’s first country to accept BTC as legal tender.
Despite the cryptocurrency market struggling to maintain momentum in recent months, the CAR anticipates that the coin will help to solve key conversion and exchange rate issues surrounding the company’s existing fiat currency, the CFA franc.
The movement to accept bitcoin as legal tender was passed unanimously by the CAR parliament, and has been welcomed Yann Daworo, an economist in the Central African Republic capital of Bangui, who said: “Businessmen will no longer have to walk around with suitcases of CFA francs that will have to be converted into dollars or any other currency to make purchases abroad.”
Significantly, a recent Chainalysis report found that between mid 2020 and mid 2021, Africans received $105.6 billion in payments - an increase of 1,200% from the year before.
With this in mind, let’s take a deeper look into the ramifications of the Central African Republic’s adoption of bitcoin, what it could mean for its economy, and why analysts are skeptical of the country’s intentions behind the move:
The Perks of National Crypto Adoption
Although the adoption of a currency as volatile as bitcoin may seem a little strange to developed countries, it can serve as an effective counter to the devaluation of domestic currencies and rising national inflation rates.
It’s likely that the steadily declining value of the CFA franc (XAF) in relation to the US dollar would’ve been an issue that bitcoin offers a relatively simple solution to.
With the value of one dollar equalling around 620 XAF at the time of writing, this hefty gulf between the currencies can make international transactions clunky and difficult to manage. However, with BTC’s lower transaction costs around the world, the cryptocurrency can enable global payments to be sent and received without businesses having to deal with vast quantities of fiat currency to exchange.
Furthermore, remittances are a key source of income for many developing countries throughout Africa and Latin America. Cryptocurrencies like bitcoin can play a leading role in making the sending and receiving of remittances far more efficient and frictionless.
Another key benefit for poorer nations adopting bitcoin is that the decentralized currency’s value is unlikely to be negatively affected by domestic issues. For nations like the CAR which has a high rate of poverty throughout the country, this can ensure that the legal tender isn’t devalued if economic downturns worsen.
Because the Central African Republic is asset rich in materials like diamonds, gold, and uranium, bitcoin may also help to improve the quality of exports around the world. However, the move to adopt BTC has also drawn plenty of criticism from onlookers globally.
Controversies Behind Central African Republic’s BTC Acceptance
The move to make bitcoin legal tender in the Central African Republic has been a controversial one in the eyes of the IMF, which highlighted key transparency issues behind the shift.
“The adoption of Bitcoin as legal tender in CAR raises major legal, transparency, and economic policy challenges,” the IMF told Bloomberg in an email. “IMF staff are assisting the regional and Central African Republic’s authorities in addressing the concerns posed by the new law.”
The timing of the CAR’s adoption of BTC may also be significant due to the country’s close ties with Russia and the global sanctions that have been put in place in the wake of Russia’s invasion of Ukraine.
"The context, given the systemic corruption and a Russian partner facing international sanctions, does encourage suspicion," said French analyst Thierry Vircoulon.
“Today, financial institutions are using cryptocurrencies to circumvent sanctions in international settlements. For example, Iran's central bank has allowed cryptocurrencies to be used to pay for imports,” notes Maxim Manturov, head of investment advice at Freedom Finance Europe. “The financial authorities took this measure to neutralize the impact of sanctions and restrictions on Iran's financial transactions with the outside world.”
“The Russian Federation is looking for the same solution to avoid sanctions (the issue was raised at the meeting of the Russian government on 26.01.2022). Based on the above, the interest in cryptocurrency is growing, and we are seeing a recovery. Experts forecast an average annual market growth, CAGR, of 12.8% from 2022 to 2030.”
With this in mind, CAF’s adoption of bitcoin may not grow to become the example that the cryptocurrency landscape was hoping for. The fact that just 11% of the country has access to the internet renders the very notion of using cryptocurrency - an entirely digital entity - virtually useless.
The Central African Republic’s adoption of bitcoin represents a major step for cryptocurrency adoption, and underlines Africa’s growing infatuation with digital currency. However, if the crypto landscape intends to maintain its improving reputation as a safe and efficient alternative digital currency, the world may need some more transparent use cases to emerge quickly.
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.