Cryptocurrency

Countries adopting cryptocurrency on a risky path – The Irish Times

When, on April 27th, Central African Republic’s president Faustin-Archange Touadéra appeared to tweet: “Mathematics is the #language of the Universe. #Bitcoin is universal money,” journalists rushed to confirm that this was his account. It was.

That same day, CAR — an impoverished, landlocked, war-torn country of roughly 5.4 million people, whose neighbours include South Sudan, Cameroon and the Democratic Republic of the Congo — made bitcoin an official legal tender.

This was surprising given that only 10 per cent of the roughly 4.8 million Central Africans have access to the internet, and fewer than 16 per cent have electricity, with most of them in capital city Bangui. Much of the country is controlled by rebel forces, making travel limited.

Data in CAR is incredibly expensive, averaging more than €8.70 for one gigabyte, about three times the average cost of data in Europe. More than 70 per cent of Central Africans were living below the international poverty line of $1.90 a day (€1.89) in 2020. In early July the United Nations Office for the Coordination of Humanitarian Affairs (OCHA) said that CAR has one of the highest proportions of critically food-insecure people in the world, with 50 per cent of the population not eating enough. More than 600,000 Central Africans are displaced, the UN has said, while decades of violence has forced more than 700,000 into neighbouring countries, where they live as refugees.

And yet 65-year-old Touadéra, who holds a doctorate in mathematics, has continued with his mission. In May he tweeted “Vires in Numeris”, a Latin motto associated with bitcoin, that means “strength in numbers”.

His plan has since run into the sand. On July 26th, CAR froze the application of its law adopting bitcoin as an official currency until the Bank of Central African States (BEAC) issues regulations for cryptocurrency throughout the Central African Economic and Monetary Community (CEMAC).

The move had sparked a backlash from the region’s central bank, the BEAC, which manages the Central African CFA Franc, which is used by six countries: Cameroon, Central African Republic, Chad, Republic of Congo, Gabon and Equatorial Guinea.

In a statement to Reuters at the time, Obed Namsio, chief of staff of President Touadéra, insisted that the law would “improve the conditions of Central African citizens,” calling it “a decisive step toward opening up new opportunities for our country”.

CAR is the second country in the world to make bitcoin an official currency. Eight months before, El Salvador in Central America — which has a population of 6 million — became the first. Fewer than half of its citizens own a bank account. That announcement was met with protests: thousands of demonstrators marched with banners, setting off fireworks and burning tires in front of the supreme court in the capital city of San Salvador. They worried it would bring instability and inflation, and said it was being used to distract from other issues.

Despite this, El Salvador’s government used nearly $100 million of public funds to purchase bitcoin, encouraging citizens to use it for everyday transactions. The majority of the country’s 6.5 million citizens downloaded a state-sponsored bitcoin wallet app, called Chivo, encouraged by the promised $30 in bitcoin they would receive. The national gross income per capita in El Salvador is about €3,517 a year.

The International Monetary Fund urged El Salvador to reverse the decision, highlighting the “large risks associated with the use of bitcoin on financial stability, financial integrity and consumer protection”, and said it would become difficult for El Salvador to access loans. And there was a crash, with the government’s holdings in bitcoin losing about 60 per cent of their presumed value.

But El Salvador’s leadership has remained defiant. In January 40-year-old president Nayib Armando Bukele responded to a Bloomberg article that said his use of his phone and public funds to trade bitcoin appeared to have lost him money by only adding the claim that he does his trading while “naked”.

El Salvador’s bonds have traded at a deep discount following the cratering of the cryptocurrency market. Moody’s has estimated El Salvador’s unrealised bitcoin losses at $57 million.

Bukele says he plans to seek re-election despite a constitutional prohibition on serving a second term.

It is not just countries looking to adopt bitcoin. Nasdaq is expanding into the crypto market in a fresh sign that the world’s biggest financial institutions have not been deterred from the crash in digital asset prices. The US stock exchange operator said earlier this month that it was launching a digital assets services business that would begin with custody of crypto tokens for institutional investors.

The invention of bitcoin has offered countries like CAR a way out … it speaks to CAR’s hunger for freedom that they are willing to adopt a new form of currency

—  Anjan Sundaram

Nasdaq, which handles billions of dollars of share deals every day in stocks such as Apple and Tesla, also said it was considering rolling out trading of digital assets. Its push comes on the heels of other big Wall Street names also introducing crypto services, shaking off a turbulent summer for the market where the most popular crypto tokens such as bitcoin and ethereum plummeted in value, and the failed terra stablecoin project caused financial ruin for investors.

The size of the crypto market fell from more than $3 trillion to less than $1 trillion, claiming once-prominent crypto firms such as Celsius and Three Arrows Capital as casualties.

In Africa, the CFA franc was established in 1945 and is backed by former coloniser France and pegged to the euro.

The adoption of bitcoin was a post-colonial move by CAR to escape a history of Western domination,” says Anjan Sundaram, whose book break-up, documenting massacres in CAR, will be published next year.

“CAR has been dominated by France for more than a hundred years … France has also orchestrated a number of coups in CAR, overthrowing leaders and installing new ones. The invention of bitcoin has offered countries like CAR a way out … it speaks to CAR’s hunger for freedom that they are willing to adopt a new form of currency.”

In some explanations, the adoption of bitcoin may also be related to the Touadéra government’s growing closeness with Russia. CAR has received bilateral military support from Russia since 2017, the year after Touadéra was elected. His government is widely accused of recruiting Russian mercenary group Wagner to fight against rebels. This has led some analysts to speculate that embracing bitcoin may make it easier to send money to Russia from CAR, getting around international sanctions. “Russian advisers have the government’s ear in not just military but also political and economic matters,” wrote Pauline Bax, of the International Crisis Group, in December last year.

A CAR government source responded by saying its bitcoin adoption “has nothing to do with Russia”.

Does the motivation matter? Alex Gladstein, chief strategy officer at the Human Rights Foundation and vice-president of strategy for the Oslo Freedom Forum, is a proponent of bitcoin. He suggests that while struggling countries may adopt it for a variety of reasons, in the long term it will be good for them.

Gladstein recently published a book called Check Your Financial Privilege, where he argues that mainstream media and political discourse generally ignore the deep impact bitcoin is having around the world because they are “blinded by their monetary and financial privilege”.

People born into reserve currencies like the dollar, euro, Japanese yen or sterling have “financial privilege over the 89 per cent of the world population born into weaker currencies”, he writes. Bitcoin, in contrast, “creates a level playing field”.

It’s likely that as we go through this decade, the countries that adopt bitcoin [will be] broken economies, isolated economies. Eventually, I think every country will adopt bitcoin. I just think it might take 50 years

—  Alex Gladstein

In his book Gladstein includes accounts from citizens in Nigeria, Ethiopia and Sudan, countries where activists have escaped government controls by accepting donations in bitcoin, or where families can save in bitcoin instead of experiencing extreme inflation on their local currency.

Gladstein says it makes sense that struggling countries would be the places where bitcoin now becomes legal tender. “Most likely, broken regimes are going to adopt it first … Bitcoin is a disruptive revolutionary force. So the countries that are on top of the world right now aren’t going to want a revolution. They want to keep the system intact. It’s likely that as we go through this decade, the countries that adopt bitcoin [will be] broken economies, isolated economies. Eventually, I think every country will adopt bitcoin. I just think it might take 50 years.”

Does its recent price volatility put these vulnerable populations at even greater risk? When asked about the recent losses, Gladstein was dismissive, saying many people won’t be affected as they’ll either use it as a bridge between currencies when sending money abroad, or they’ll hold it for years, during which time the value will likely increase. “Over long periods of time, it’ll be a phenomenal savings instrument. It’s done very, very well over the last two years. And then even better over the last five.”

When approached for comment, an IMF spokesperson said that CAR’s adoption of bitcoin raised “major legal, transparency”, and economic policy challenges for CAR and CEMAC.

The Central African Banking Commission’s supervisor recently clarified that banks in the region are prohibited “from holding, exchanging, converting, or settling transactions associated with cryptocurrencies … a step towards strengthening regulatory certainty and convergence in the CEMAC region”, the IMF spokesperson said.

Two months after announcing the adoption of bitcoin, Touadéra made another revelation: that CAR has been developing its own cryptocurrency, the sango coin.

“I have always wanted to [leave] something precious as [a] legacy to the future generations,” Touadéra said in a nearly two-hour launch event for the cryptocurrency.

Touadéra’s vision is to have a “common cryptocurrency and an integrated capital market that could stimulate commerce and sustain growth”. Financial services are “almost inaccessible to many people on our continent,” he said. Because some 57 per cent of Africans don’t use formal banking, he called the smartphone “the alternative to the traditional bank office” and cryptocurrency the alternative to cash. The advantages are “rapid access, fast execution, lack of bureaucracy and low cost”.

Touadéra explained that he wants to build a “powerful, united, rich” country. “We want the entire world to consider us as visionaries capable of having great ideals.” He encouraged other African countries to “aspire to the same dream”.

“For us, the formal economy is no longer an option … an impenetrable bureaucracy keeps us locked in a system that does not give us the possibility to be competitive. We thus took our destiny in our own hands.”

Launched in late July, Sango Coin received a lukewarm reception from investors.

In August, CAR’s high court denied the government’s plan to offer citizenship, land and valuable minerals to investors who purchased $60,000 of sango coin, saying the proposal was unconstitutional.

Sango was to have been “the catalyst of the tokenisation of the country natural resources”, including $285 billion of diamonds, $60 billion of gold, and $2.2 trillion of iron, according to the website. “CAR … sits on a mountain of resources: gold, diamonds, rare minerals, unexploited treasures due to a lack of infrastructure,” Touadéra said. “Sango coin will be the direct access to our resources for the whole world.”

The Sango launch event, which was hosted by a Frenchman and included speakers from the Netherlands, highlighted the involvement of international cryptocurrency enthusiasts in CAR’s latest developments. A group of seven Bitcoin experts, calling themselves the Bitcoin Delegation, spent a week in CAR in May.

In a 12-page report, which contained recommendations for the president, they advised that the lack of internet access means a lack of information. Thus, uninformed people can easily fall victim to cryptocurrency scams carried by promises of quick and easy income.

They said CAR “does not have an adequate energy network to enable an inclusive adoption of bitcoin on its territory”, and using mining or crowdfunding to finish a small hydro-plant would be a good start.

They suggested that, for the purposes of education for the general public, a bitcoin “house” or “embassy” should be set up in Bangui, where experts could carry out workshops. The building could also “serve as a hub for bitcoiners from all over the world who want to support the state’s educational efforts”.

A CAR government source said both bitcoin and Sango “will be used mainly for institutional purposes and will be perfectly transparent, everything can be verified on the blockchain by any user”.

The lack of digital literacy in many countries potentially leaves people vulnerable to abuse. In 2019 the BBC documented how thousands of Ugandans bought into a fake cryptocurrency called onecoin, with a network of salespeople encouraging locals to sell cattle, land and even their homes to buy into the scam. Some of those who lost everything had no computers or smartphones, but they were convinced to invest by relatives who lived in the city, whom they assumed knew more about what was safe and what would be lucrative.

Is bitcoin above control by authoritarians, as its proponents say? Across Africa, there has been a growing use of nationwide internet shutdowns by governments, prompted by everything from controlling protests, to making sure students don’t cheat on their exams. What could this mean for a currency which requires internet connectivity to function? Time will tell. — Additional reporting by The Financial Times

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