Yusuf Bangura: Sierra Leone Telegraph: 10 May 2022:
War-torn Central African Republic (CAR) has followed El Salvador by adopting bitcoin as legal tender for all transactions in the country. Strangely, this has been done without the knowledge or approval of the regional monetary body, the Bank of Central African States, based in Youndé, Cameroon, which regulates the monetary policies of the six countries (CAR, Cameroon, Gabon, Chad, Equatorial Guinea and Republic of the Congo) that use the Central African CFA franc as their currency.
France controls both the Central African and the West African CFA franc zones. The two currencies issued by these regional bodies were originally tied to the French franc at independence but are now tied to the euro; 50% of the reserves of the two regional banks that issue the currencies are deposited in the French treasury; and France has representatives who enjoy veto powers on the boards of the two regional banks.
It’s not surprising that in their 2021 book Africa’s Last Colonial Currency: The CFA Franc Story, Fanny Pigeaud and Ndongo Samba Sylla describe France’s relations with the 15 African countries that use the CFA franc as ‘monetary imperialism’.
Resistance to France’s imperial role in the monetary affairs of its excolonies has gained strength in recent years. Many blame the CFA’s conservative monetary arrangements for stifling growth and social investments and the general economic backwardness of most of the countries in the two monetary systems. Most of the CFA franc countries are at the bottom of virtually all global economic and social indexes.
In order to placate popular pressures against the CFA franc arrangements, Côte d’Ivoire’s president Alassane Ouatara, working with president Macron of France, announced in 2019 that the CFA franc will be changed to eco, a name that the Economic Community of West African States had already chosen for its proposed currency, and that France will continue to act as the guarantor of the currency. This Ouattara-Macron strategy to scuttle the development of ECOWAS’s eco clearly demonstrates that the biggest threat to West African integration is France’s imperial designs in the region.
The Central African Republic’s decision to use bitcoin as legal tender alongside the CFA franc may be seen as part of the campaign to end France’s grip on the economic, political and military affairs of CFA franc countries. However, it raises the question whether serious thought has gone into the new policy and whether this way of delinking from France will be beneficial to the economy and wellbeing of the citizens.
The new external power in CAR’s military field is Russia, which, through its mercenary outfit, the Wagner Group, provides security to the government of the Central African Republic, engages in mass atrocities against civilians, and plunders the country’s diamonds, gold and other rich minerals. Like in Mali, France’s influence in the Central African Republic has significantly deteriorated, with Russia and the Wagner Group now calling the shots.
As a mineral-rich, woefully underdeveloped, war-torn country (CAR is ranked 188 out of 189 in the human development index) whose principal security provider (Russia) is under Western sanctions, use of bitcoin serves the interests of both the Wagner Group and the CAR politicians and business groups who collaborate with Wagner to pillage the country’s resources. Transactions in bitcoin are extremely difficult to regulate or control.
In El Salvador, a recent study ‘’Are Cryptocurrencies Currencies? Bitcoin as Legal Tender in El Salvador” by Fernando E. Alvarez, David Argente and Diana Van Patten (NBER Working Paper, April 2022) shows that despite the government’s provision of $30 as a sign-on bonus, petrol subsidy and elimination of transaction costs, most citizens don’t trust bitcoin as a medium of exchange or currency.
Only 20% of those who downloaded the bitcoin app continued to use it after spending their $30 sign-on bonus (and even this 20% did not use the app frequently); only 5% paid their taxes in bitcoin; and only 20% of firms—mostly the large ones—accept payment in bitcoin.
Leading economists have argued that cryptocurrencies don’t solve any problem that current currencies or payment systems don’t handle. There are already many digital payment systems in most parts of the world that are easy to use and widely accepted.
The cost of conducting transactions in cryptos is high, and the creation of a crypto coin requires mega computing, which consumes a lot of energy and is detrimental to the environment.
The biggest drawback to cryptocurrencies as a medium of exchange, however, is their high level of volatility. Bitcoin is reckoned to have lost about 50% of its value in the last six months. The reason is simple.
Cryptocurrencies are still treated as assets rather than as a medium of exchange. They are emerging as the asset of choice for money launderers and tax dodgers. Big speculators, such as hedge funds, have also recently been attracted to them as risky assets. Their investment in bitcoin sent its price to rise astronomically in 2021.
But the current global economic uncertainties, which are partly driven by the war in Ukraine, have forced these investors to sell much of their crypto assets. Economists have shown that investors treat cryptocurrencies and tech companies as risky assets: bitcoins’ price tends to track the share prices of tech companies or the NASDAC.
Using a cryptocurrency asset as a national currency will endanger the incomes and savings of the poor and less well-off who have very limited room to handle shocks. It’s not surprising that when Salvadoreans who’ve signed up for the currency get paid in bitcoin they quickly convert them into dollars.
It’s is reckoned that only about 4% of citizens in the Central African Republic have access to phones with internet services. It’s difficult to see how bitcoin, which requires internet access, can work in such a society. This is simply a scheme to protect the ill-gotten wealth of politicians, sections of the business elite and their new Wagner/Russian backers.