The Tale of Two Countries That Took a Chance on Bi...

Ige Abdullah

Expert

Content Fellow of NODO

19h ago

The Tale of Two Countries That Took a Chance on Bitcoin

The potential economic and monetary benefits of the adoption of cryptocurrency as a legal tender have made El Salvador and the Central African Republic (CAR) forerunners in the concept. The countries’ respective political leaders cited the potential economic benefits as their underlying rationale for promoting cryptocurrency as a national legal tender. Both countries regard this as an innovative solution to economic stagnation, poor revenue and foreign direct investment, and a reliance on foreign currencies. While adopting this move, the countries have faced significant implementation challenges, threatening to undermine their objectives. We will explore them in more detail in this article.

Crypto Approval in El Salvador

El Salvador took the step of adopting Bitcoin as a legal tender in 2021, intending to increase investment and assist citizens who lack access to traditional financial services. Initially, to integrate Bitcoin into its economy, the country contracted third-party companies to develop centralised cryptocurrency wallets known as ‘Chivo Wallets’ and cryptocurrency ATMs. This government-funded project allows citizens to transfer funds quickly through the use of the ‘lightning network’ – a solution that increased the speed of Bitcoin transactions – and without commission fees.

Crypto Approval in CAR

The CAR moved to adopt Bitcoin in April 2022, but the government reversed its decision when the Constitutional Court declared the proposal unlawful a month after it was introduced. After this reversal, the government took a different route and created a partially Bitcoin-backed cryptocurrency, known as the Sango Coin, to be introduced in phases. The first phase would allow the public to buy into the crypto-backed currency, while the subsequent phases would allow the use of the currency for certain government services, like purchasing citizenship, e-residency and land.

At the onset of the project, the coin also promoted the tokenisation of natural resources within the country. Despite the project not initially gaining traction, as of July 2023, the CAR National Assembly revisited the concept and passed a law allowing the tokenisation of land and natural resources.

Aftermath of Crypto Approval in El Salvador

El Salvador suffered from a lack of appropriate infrastructure to fully realise the adoption of crypto. For instance, in El Salvador, 40% of the population lacks access to the internet, a critical factor for allowing the cryptocurrency industry to flourish. Fewer than 60% of those who had internet access and mobile phones downloaded Chivo Wallet, and only 20% continued to use it. Also, according to estimates, 40% of all downloads occurred when it was launched in September 2021, and virtually no downloads took place in 2022.

Secondly, transparency has been a persistent problem. The president of El Salvador's tweets, for example, have been the only source of information enabling the public to know the amount of Bitcoin that the government has bought or sold.

Finally, in addition to low transparency, the price volatility of Bitcoin has raised eyebrows as to whether or not these initiatives are truly worthwhile. Securing convertibility is a tough procedure with Bitcoin's price fluctuation. Given that the adoption of Bitcoin as legal tender in El Salvador is entirely sponsored by public funds via a trust, there is a major risk that the trust's resources will be drained if the price of Bitcoin declines. According to estimates of the reported amount of Bitcoin purchased by El Salvador, the country has lost approximately $56 million as of June 2022. The IMF has proposed that El Salvador should support the trust through new resources or debt issuance to ensure financial stability and convertibility.

Aftermath of Crypto Approval in CAR

Central African Republic also suffered from a lack of appropriate infrastructure to fully realise the adoption of crypto. In the CAR, according to 2021 estimates, only 11.4% of the country’s population has internet access, the electricity supply is patchy and unreliable, and mobile phone usage is low.

The CAR declared that a Treasury-maintained partial Bitcoin reserve would support the Sango Coin, although little information about the related technicalities has been made available to the general public. Consequently, public trust in these initiatives has been low. There have also been allegations that in the case of the CAR, adopting cryptocurrency would provide a convenient avenue for Russia to evade Western sanctions, given its close ties with the country.

Additionally, appropriate regulatory and legal regimes were not in place prior to the introduction of a government-sponsored cryptocurrency application in CAR. The lack of anti-financial crime measures, like Know Your Customer and transaction monitoring, presented a major risk of increased illicit financial flows, a risk that could spread beyond the country's borders.

Wrapping it up

What is clear from the El Salvador and CAR experiments is that adopting cryptocurrency as legal tender requires a certain amount of readiness in terms of digital infrastructure, transparency and accountability. The most fundamental requirement is physical infrastructure. Countries must be prepared to ensure that the majority of the population has access to reliable electricity, the internet and smartphones. Furthermore, countries need a robust regulatory framework in place to reduce the risk of financial crime.

Resources

Too Fast, Too Furious? Cryptocurrency as Legal Tender — https://rusi.org/explore-our-research/publications/commentary/too-fast-too-furious-cryptocurrency-legal-tender

Wow so educative bro , keep it up , take the NODO to the high.

Sulaiman Musa Abdullahi Co-Founder ofBookbay

# Bitcoin # Expert # Post

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COMMENTS (4)

Sulaiman Musa Abdullahi

Expert

Co-Founder of Bookbay

17h ago

Wow so educative bro , keep it up , take the NODO to the high.

Martin || Goma pool

Web 3 education facilitator and Goma pool marketer of Upfrontr

10h ago

Bitcoin has gained significant attention and popularity in recent years as a potentially transformative digital asset with its decentralized nature and limited supply. Its price volatility, however, remains a point of concern for many investors.

Mary Tee

Client of OPAY

10h ago

Amazing and insightful content

Promise Abraham

Member of Web3Ladies

15h ago

Very informative, thank you for sharing this knowledge.

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