The Central African Republic (CAR) last week announced that it will adopt bitcoin as legal tender, becoming the second country to do so after El Salvador in 2021. In other words, bitcoin will be officially considered legal tender alongside the regional Central African CFA franc.
With little to no details stretching beyond the headline, many of you may be wondering, well, what’s the point? To answer that, we’ll first have to look under the hood of CAR’s geopolitical and economic history.
What We Know:
- Although the CAR is home to valuable minerals such as diamonds and gold, its one of the six poorest countries on the planet and is one of the world’s least-developed economies.
- Roughly 71% of CAR’s 5.4 million inhabitants were living below the international poverty line in 2020, according to the World Bank.
- The country, which is landlocked in the heart of Africa, has been gripped by political instability and violence for years.
- Internet coverage in the CAR is only 11%.
The Legal Tender Impact
While we can’t pin down the exact reasoning for the CAR’s government to unexpectedly make such a move, we can stipulate as to why it makes sense.
- Similar to El Salvador years back, there is little to no incentive to do business in the CAR. Perhaps welcoming crypto with open arms will now attract more visitors and entrepreneurs.
- To bank the unbanked? With limited access to the banking services that many of us, fortunately, have stateside, the acceptance of bitcoin gives those with internet access the power of becoming their own bank instead of relying on their historically unstable government.
- Furthermore, it’s something that could help the country’s business community or others who are reliant on remittances. Transferring your local currency across borders via bitcoin – no matter where you live – is a much cheaper and more efficient alternative. And for developing countries, any possibility of money flowing into the economy is pretty important.
In an interview with Politico, longtime advocate of adopting Bitcoin in the developing world, Alex Gladstein, gave his two cents on the matter…
For starters, Gladstein has always been a critic of the CFA franc, and for good reason. The currency is used by the Central African Republic and more than a dozen other African nations as part of a monetary system overseen by France that is often described as “neo-colonial.” That said, Gladstein alludes to the possibility that the CAR may be making its first effort to ditch the monetary system overseen by France.
“To add a currency that France doesn’t control has a massive symbolic importance to it. It’s also important that the Russians or the Chinese don’t control said currency, or the Americans for that matter. I think this is going to have some butterfly effects over West and Central Africa over the coming years.”
To Sum It Up…
The CAR’s move to make bitcoin a legal tender won’t have an immediate impact on the economy or its citizens considering that only 11% of its population has electricity/internet access. The move, however, could be a big help for commerce and remittances and could very well be a rebuke to the colonial franc.
But Wait… It Doesn’t Stop Here
The CAR wasn’t the only country to make headlines these past few days. In what was considered another milestone by the bitcoin community, Panama recently approved a bill to regulate the use and commercialization of crypto assets.
Now, the bill doesn’t allow for any crypto to become legal tender as we learned in the story above. It does, however, make it possible for Panamanians to use crypto assets as means of payment for any civil or commercial operation not prohibited by law in the country.
Two things we’d like to point out, real quick…
1.) As of today, or until President Cortizo officially signs the bill into law, it is illegal for digital asset companies to set up shop in Panama. But that’s all about to change. The end result could eventually be a bolstering crypto economy inside a country that is already known as a hub of offshore financial services.
2.) The law will treat crypto assets as foreign-source income, which in accordance with Panama’s territorial taxation system, means no taxes on capital gains. You already know that, somewhere out there, a crypto company (or, sovereign individual) is perking up to the tax-advantage opportunity.