The Central African Republic is taking a risky bet by adopting bitcoin as its official currency

12:34 p.m., June 22, 2022

On the evening of April 22, 2022, the media were unanimously taken aback by the shift that extended the monetary policy of the Central African Republic: the adoption of bitcoin as the official currency alongside the CFA franc and the legalization of the use of cryptocurrencies. The CAR presidency affirms that “this approach places the Central African Republic on the map of the most courageous and visionary countries in the world”given that it would be the second state in the world to undertake it, after El Salvador, and the very first on the African continent.

An optimism for the new blockchain economies that many observers do not share, like Bill Gates, who believes that cryptocurrencies bring nothing to society. This position is also taken by the director of the European Central Bank Christine Lagarde, for whom these digital assets are worthless.

Cryptocurrency in the CAR, a Far West that incites mistrust

Two reasons seem to justify the concerns aroused by Bangui’s decision.

The first is simply the fact that cryptocurrency is driven by a self-made claim that escapes the traditions and classicism of economies and exchange systems, whose laws are valid and identifiable in all eras. A veritable black hole for followers of the social contract, who believe that modes of organization that are not subject to authority are lawless Wild West.

The second reason is the economic size of the Central African Republic, which is one of the poorest countries on the planet. Let’s take a closer look.

Read also – Does cryptocurrency have a future in emerging countries?

The lawsuit against cryptoassets is not without reason. To adopt cryptocurrency as legal tender is to engage in a geopolitics of the unknown, uncertainty and surprise – uncertainty being a source of insecurity, if only because it facilitates the development of unknown intentions and the deployment of uncontrolled actions. Shifting activities dependent on the sovereign to a dependence on the laws of the market or zones of ultra-liberalism, created precisely to escape the sovereignty of States and other political constraints, is not without risk. In this race, weak states like the Central African Republic do not seem to have the best assets.

And what about donning it, an integral feature of cryptocurrency that condemns the price of bitcoin to perpetual precariousness? By 2021, bitcoin prices had soared more than 150%, reaching a historic high of $68,991, before collapsing. Even if the market has calmed down in 2022, the variations remain very strong: -17% in February, +8% in March and +10% in April. Bitcoin was trading on April 27, 2022 at over $39,000; its value as of May 26 was $29,494.60; as of June 21, it was $20,033.31.

The experience of El Salvador, where 92% of the more than 1,600 people questioned in a survey determined their dislike of bitcoin and 93.5% their reluctance to be paid in bitcoins, is likely to reinforce this mistrust.

Bitcoin is regularly perceived as a speculative bubble because of the unpredictable alternation between the surges of its prices and their vertiginous falls. For many specialists, the generalization of its use can only cause catastrophic financial losses.

Central banks accuse it of encouraging financial imbalances, money laundering and tax evasion. The International Monetary Fund called El Salvador’s decision a danger to “financial stability, financial integrity and consumer protection”. Regarding the Central African Republic, Abebe Aemro Selassie, Africa Director of the IMF, warns that cryptocurrencies should not be considered “as a panacea against economic challenges”.

Bitcoin is also suspected of facilitating scams, terrorist financing and trafficking of all kinds because of its encrypted anonymous payment system. Illicit transactions enabled by bitcoin are estimated at $76 billion per year, or 46% of bitcoin transactions.

In any case, to lend itself institutionally to the movement of crypto-assets and succeed in the game, the CAR should have the infrastructure and the economic complexity necessary to absorb their developments. Or the economic and technological security of the country raises many concerns.

CAR’s economic insecurity

According to the latest country risk assessment from the Compagnie française d’assurance specializing in export credit insurance (COFACE), the security and political conditions in the CAR are a source of fragility and instability, something to which s ‘ adds the extreme poverty of the population.

The economy has a heavy dependence on commodity exports – a dependence that is all the more problematic as the export of gold and diamonds, which often takes place illegally, supplies very little public revenues. With an average inflation of 2.7% over the last four years, growth rate discounts of 3.4% for 2022 should not let us forget that it was -0.6% in 2021. Other defeatist indices , the current account balance relative to GDP (-6.1% in 2022) and the public balance relative to GDP (-1.2% in 2022) have all been negative for the past three years.

Read also – Cryptocurrencies, a crash that hurts

According to the World Bank, since independence in 1960, wealth per capita has been halved in the CAR. A sustainable economic recovery, possible only if insecurity drops significantly, is essential to reduce poverty (70% of the population will live below the poverty line in 2020. This poverty explains the high infant mortality, estimated at 882 per 100,000 births but also the country’s ranking on the UN’s Human Development Index, 188th out of 189 countries in 2020.

The African Development Bank makes a similar observation by defining that the risk of over-indebtedness of the CAR remains high due to its great vulnerability to external shocks and the risk of change linked to the high level of its external debt. This economic size shows how much the development challenges remain a priority and profound there.

Infrastructure gap and weak digital education

The operationalization of a sustainable blockchain economy project on a national scale, with regard to its global nature and the proposed linking effects, should be based at least on a sustainable basic infrastructure and viable digital education.

However, the infrastructural capacities of the CAR are very limited. In terms of energy, the energy ratio between production (171 million kWh) and electricity consumption (159.40 million kWh) in CAR is in excess of 108% of actual current needs. But on March 22, after requesting the CAR to finance the development of its network and its electricity capacity, the World Bank suggested that the CAR remains the country in the world where the rate of access to electricity is the weakest. Before adding that the implementation of such a project would be very difficult there.

With an electrification rate of 3%, and while 4 of its 5 million inhabitants lived without electricity in 2012, due to lack of investment, a UNDP study in 2017 shows that the country’s hydroelectric potential remains under-exploited. Bioenergy still accounts for 98% of national production. It is the pre-eminence of this category of energy in national production that seems to justify the scarcity of technological infrastructures for electrical consumption. In addition, several major projects are disrupted by cycles of security and political instability. In 2022, the government is still trying to reassure the population, which expects concrete achievements.

On the technological level, during the approval of the CAR component of the Central African fiber optic backbone in 2018, the African Development Bank noted that “CAR remains the last landlocked country on the continent without terrestrial fiber optic links with its immediate neighbours. In addition, the notorious low penetration rate of the Internet and mobile telephony is compounded by the virtual non-existence of wired broadband infrastructures..

Four years later, although Huawei and Orange are stepping in as major technology partners, progress has been mediocre. If the Datacenters are implemented for specific structures such as the Ministry of Finance and Budget or that which accompanies the RCA component of the fiber optic backbone of Central Africa, these critical installations remain under the constant threat posed by the prevailing insecurity. in the country.

“Where the Internet proposes to create bridges, illectronism always risks blocking it”, underlined in November 2020 Philippe Wang, then executive vice-president of Huawei Northern Africa. The Central African digital landscape illustrates the correctness of this assertion. Thus, the difficulty experienced by individuals in mastering digital tools in the CAR constitutes one of the major limits to digitization and to the education of populations in digital tools.

According to the voluntary national report for monitoring the implementation of the Sustainable Development Goals in 2019, while the adult literacy rate is 58.9%, the share of schools with access to electricity is 3% and none have Internet access. In total, there are 650,000 Internet users in the CAR for approximately 5 million inhabitants, with a general penetration rate of 14% in January 2020. The CAR is at the bottom of the world rankings of the main social networks with 2, 5% penetration rate.

A reform that will only benefit a minority

In this context, the adoption of bitcoin as an official currency will reveal the country’s digital divide. The blockchain economy can be beneficial, but it requires significant human, material and financial investment. Otherwise, it will become an elite model whose impact will be limited to wealthy urbanites and digital instruments.

Finally, it is at the same time too early to confirm the promises made at the launch of bitcoin, but also, too early to definitively condemn it after the announcement of the new Sango project…

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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