Central African Republic's Bitcoin Adoption Will Be A Real Test Case: Here's Why
The Central African Republic has become the first country in Africa and second in the world after El Salvador to adopt bitcoin as a legal tender. Among the poorest in the world, the African country is likely to serve as a case study on bitcoin adoption in under-developed and politically unstable regions.
Central African Republic's move towards bitcoin is surprising since it is not among the top African countries in crypto adoption and did not have any supporting infrastructure before the announcement.
A recent Chainalysis data showed Kenya, South Africa, and Nigeria among the top 10 countries in the world for cryptocurrency use.
Reports said that President Faustin Archange Touadera signed a law to make bitcoin an official currency alongside the CFA Franc and legalise cryptocurrencies.
"This move places the Central African Republic on the map of the world's boldest and most visionary countries," the Presidential office said.
Significantly, the civil war-infested country is currently under an IMF-monitored financial reform programme. The IMF has opposed the adoption of bitcoin or any cryptocurrency, calling them 'significant financial risks'.
"In the last decade, many economically-handicapped countries switched over to the US dollar. Now, people – and governments in particular – are looking at cryptocurrencies as the problem solver," crypto expert Anndy Lian told NDTV.
In the case of the Central African Republic, the oft-repeated charge of former colonial power France's overreaching economic influence could have been one of the triggers for legalising bitcoin.
However, there is no official statement yet linking the move to the flaws in the France-supported CFA Franc ecosystem.
While Mr Lian believes bitcoin is a good hedge against country-specific risks, he cautioned that bitcoin could only be a mid-way solution for economic stabilisation.
"Bitcoin can help build the economy in the short run. In the long term, countries need to innovate with a localised, sustainable model," he said.
The African nation's troubles are poor internet penetration and a high unbanked population - two metrics detrimental to adopting a sophisticated technology like bitcoin.
According to a Datareportal report, internet penetration stood at a mere 11.4% in January 2021, while the IMF estimates that 99% of the population is unbanked.
A look at the situation in El Salvador, which on September 7 last year became the first country to adopt bitcoin as a legal tender, suggests that bitcoin as a currency has not yet gained wider acceptance among the general public.
As per a National Bureau of Economic Research survey, the "usage of bitcoin for everyday transactions is low and is concentrated among the banked, educated, young, and male population".
About 70% of El Salvador is unbanked. Interestingly, the government had supported the adoption of bitcoin to enable greater financial inclusion.