The Central African Republic, one of the poorest, least-connected nations in the world, is getting on the Bitcoin bandwagon despite growing evidence that state-led crypto adoption is easier said than done. The war-torn country is only the second national government after El Salvador to pass a law designating Bitcoin as legal tender alongside its dominant fiat currency.
The news coincided roughly with a new survey from the National Bureau of Economic Research, a private nonprofit research organization, suggesting that the ongoing Bitcoin experiment in El Salvador has largely failed on its own terms and is deeply unpopular with Salvadorans.
El Salvador's "Bitcoin Law," which went into effect in September of 2021, mandates that all businesses must accept the highly volatile cryptocurrency as a form of payment.
The country also launched an app, known as "Chivo Wallet," that allows citizens to hold and trade Bitcoin without paying transaction fees.
Despite most Salvadorans preferring cash as a form of payment, the government tried to prod citizens into downloading the app with $30 worth of Bitcoin as incentive. As it turned out, that bonus was one of the only things driving adoption in that first month.
The survey noted that most downloads of the app took place in September and that "virtually no" downloads took place in the first quarter of 2022.
In addition, it pointed out that Bitcoin is so far not being used for tax payments or remittances at any significant scale, puncturing a common narrative from crypto enthusiasts that one of Bitcoin's main selling points is cheaper and more seamless cross-border transactions.
The researchers cited data from El Salvador's central bank that just 1.6 percent of remittances passed through digital wallets in February, which is the lowest rate since Chivo's launch.
Businesses have also been wary of accepting the cryptocurrency, despite the law requiring that they do so. A survey of Salvadoran business owners found that just 20 percent said they have accepted Bitcoin as a means of payment, and that just 4.9 percent of all sales were paid in Bitcoin.
Out of these sales, 88 percent were transferred into dollars — rather than being held as Bitcoin in wallets — making their status as Bitcoin transactions more or less perfunctory.
Overall, the survey found that wealthier, more educated, and more connected Salvadoran citizens were more likely to use Bitcoin.
Making bitcoin legal tender has also weakened El Salvador's economic position globally.
Fitch in February lowered the country's credit default rating to junk status just weeks before the country planned to launch a $1 billion Bitcoin bond. The agency cited bitcoin adoption and President Nayib Bukele's increasingly authoritarian government as the reasons behind the downgrade.
"In Fitch's view, weakening of institutions and concentration of power in the presidency have increased policy unpredictability, and the adoption of bitcoin as legal tender has added uncertainty about the potential for an IMF program that would unlock financing for 2022-2023," the ratings agency said in a statement.
The law has also strained the country's relationship with the IMF, which has since blocked a planned $1.3 billion loan that the country may need to pay off its international debts. The organization has been explicit that adopting Bitcoin as legal tender is not a good move.
"We don’t recommend it," said Alina Carare, head of the IMF's El Salvador team, in a press release. "In the short-term, the costs and risks largely outweigh the benefits."
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So why is the Central African Republic taking a page out of El Salvador's book?
The decision has left many scratching their heads, including former prime ministers and the country's own central bank, which said it was not informed about the new law.
Many are wondering how the country will pull off a Bitcoin rollout given that it's in a much weaker position economically than El Salvador.
For context, internet penetration in the African country is just 11 percent, compared to around 50 percent in El Salvador, according to Datareportal. That number was as low as 4 percent in 2019, according to WorldData.
Just 15.5 percent of the country, meanwhile, has access to electricity, while 100 percent of El Salvador has access to electricity as of 2020, according to the World Bank.
One similarity is that both countries actually have relatively stable fiat currencies. El Salvador adopted the U.S. dollar back in 2001, and the Central African Republic is one of six countries to rely on the Bank of Central African States (BEAC), which is backed by the Bank of France.
The Central African Republic is also in the middle of a “staff-monitored program” with the IMF that could determine whether it can get access to credit in the future.
Crypto enthusiasts, meanwhile, have touted the law as another win for crypto adoption worldwide and suggested it was the beginning of a trend on the continent.
Their optimism was also bolstered by a series of smaller-scale adoption measures. The mayor of Buenos Aires announced last month that the city plans to let residents pay their tax bills in crypto. Panama also passed a bill allowing Bitcoin as a form of payment, though it stopped short of making it legal tender or requiring that businesses accept it.