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The paradoxical transition to the blockchain economy in the Central African Republic

One of the poorest states in the world has just announced that its citizens will now be able to pay for their purchases in bitcoin. A controversial decision.

On the evening of April 22, 2022, the media were unanimously taken aback by the turn taken by the monetary policy of the Central African Republic: theadoption of bitcoin as official currency alongside the CFA franc and the legalization of the use of cryptocurrencies.

The presidency of the CAR affirms that "this step places the Central African Republic on the map of the most courageous and visionary countries in the world", given that it would be the second State in the world to undertake it, after the Salvador, and the very first on the African continent.

An optimism for the new economies of the blockchain that many observers do not share, like Bill Gates, who believes that the cryptocurrencies do nothing for society. This position is also taken up by the director of the European Central Bank Christine Lagarde, for whom these digital assets are worthless.

Cryptocurrency in the CAR, a Far West that incites mistrust

Two reasons seem to justify the concerns aroused by Bangui's decision.

The first is simply the fact that cryptocurrency is driven by a self-made claim that escapes the traditions and classicism of economies and exchange systems, whose laws are valid and identifiable in all eras. A veritable black hole for the followers of the social contract, who believe that modes of organization that are not subject to authority are lawless Wild West.

The second reason is the economic size of the Central African Republic, which is one of the poorest countries on the planet. Let's take a closer look.

Central African Republic: bitcoin becomes the official currency (France 24, April 28, 2022).

The lawsuit against cryptoassets is not without reason. To adopt cryptocurrency as legal tender is to engage in a geopolitics of the unknown, uncertainty and surprise – uncertainty being a source of insecurity, if only because it facilitates the development of unknown intentions and the deployment of uncontrolled actions. Shifting activities dependent on the sovereign to a dependence on the laws of the market or zones of ultra-liberalism, created precisely to escape the sovereignty of States and other political constraints, is not without risk. In this race, weak states like the Central African Republic do not seem to have the best assets.

And what about volatility, an intrinsic characteristic of cryptocurrency which condemns the price of bitcoin to perpetual precariousness ? By 2021, bitcoin prices had soared more than 150%, reaching a historic high of $68, before collapsing. Even if the market has calmed down in 991, the variations remain very strong: -2022% in February, +17% in March and +8% in April. Bitcoin was trading on April 10, 27 at over $2022; its value as of May 39 was $000; as of June 26, it was $29.

The experience of El Salvador, where 92% of more than 1 people questioned in a poll expressed their bitcoin dislike and 93,5% their reluctance to be paid in bitcoins, is likely to reinforce this mistrust.

Bitcoin is regularly perceived as a speculative bubble because of the unpredictable alternation between surges in its prices and their vertiginous falls. For many specialists, the generalization of its use can only lead to catastrophic financial losses.

Central banks accuse it of encouraging financial imbalances, money laundering and tax evasion. The International Monetary Fund has qualified El Salvador's decision to jeopardize "financial stability, financial integrity and consumer protection". Regarding the Central African Republic, Abebe Aemro Selassie, Africa Director of the IMF, warns that cryptocurrencies should not be considered “as a panacea against economic challenges”.

Bitcoin is also suspected of facilitating scams, terrorist financing and trafficking of all kinds because of its encrypted anonymous payment system. The illicit transactions enabled by bitcoin are estimated at $76 billion per year, or 46% of bitcoin transactions.

In any case, to lend itself institutionally to the movement of crypto-assets and succeed in the game, the CAR should have the infrastructure and the economic complexity necessary to absorb their developments. However, the economic and technological security of the country raises many concerns.

CAR's economic insecurity

According to the latest country risk assessment of the French insurance company specializing in export credit insurance (COFACE), the security and political conditions in the CAR are a source of fragility and instability, to which is added the extreme poverty of the population.

The economy is highly dependent on commodity exports – a dependency that is all the more problematic as the export of gold and diamonds, which often takes place illegally, supplies very little public revenues. With an average inflation of 2,7% over the last four years, the growth rate forecasts of 3,4% for 2022 should not let us forget that it was -0,6% in 2021. Other defeatist indices , the current account balance relative to GDP (-6,1% in 2022) and the public balance relative to GDP (-1,2% in 2022) have all been negative for the past three years.

According to the World Bank, since independence in 1960, the Wealth per capita has been halved in CAR. A sustainable economic recovery, possible only if insecurity drops markedly, is essential to reduce poverty (70% of the population would live below the poverty line in 2020. This poverty explains the high infant mortality, estimated at 882 per 100 live births, but also the country's ranking on the UN human development index, at 000e rank out of 189 countries in 2020.

The Central African Republic's decision to adopt Bitcoin as legal tender is controversial (Jeune Afrique, May 5, 2022).

The African Development Bank makes a similar observation, emphasizing that the risk of over-indebtedness in the CAR remains high due to its high vulnerability to external shocks and the exchange risk linked to the high level of its external debt. This economic size shows the extent to which development challenges remain a priority and profound there.

Infrastructure gap and weak digital education

The operationalization of a sustainable blockchain economy project at the national level, in view of its globality and the expected sequencing effects, should be based at least on a sustainable infrastructural base and viable digital education.

However, the infrastructural capacities of the CAR are very limited. From an energy point of view, the energy ratio between production (171 million kWh) and electricity consumption (159,40 million kWh) in CAR is 108% in excess of actual current needs. But on March 22, after requesting the CAR to finance the development of its network and its electricity capacity, the World Bank suggested that the CAR remains the country in the world where the rate of access to electricity is the weakest. Before adding that the implementation of such a project would be very difficult.

With an electrification rate of 3%, and while 4 of its 5 million inhabitants lived without electricity in 2012, for lack of investment, a UNDP study shows in 2017 that the country's hydroelectric potential remains underexploited. Bioenergy still accounts for 98% of national production. It is the pre-eminence of this category of energy in national production that seems to justify the scarcity of technological infrastructures for electrical consumption. In addition, several major projects are disrupted by cycles of security and political instability. In 2022, the government is still trying to reassure the population, which expects concrete achievements.

From a technological point of view, during the approval of the RCA component of the Central Africa Fiber Optic Backbone 2018 in the African Development Bank made the observation that “the CAR remains the last landlocked country on the continent not to have terrestrial fiber optic links with its immediate neighbours. In addition, to the notorious low penetration rate of the Internet and mobile telephony is added the virtual non-existence of wired broadband infrastructures”.

Four years later, although Huawei and Orange are acting as major technology partners, progress remains poor. If Datacenters are implemented for specific structures such as the Ministry of Finance and Budget or the one who accompanies the RCA component of the Central African fiber optic backbone, these critical facilities remain under constant threat posed by the prevailing insecurity in the country.

"Where the Internet proposes to create bridges, illectronism always risks blocking it", emphasized in November 2020 Philippe Wang, then Executive Vice President of Huawei Northern Africa. The Central African digital landscape illustrates the correctness of this assertion. Thus, the difficulty experienced by individuals in mastering digital tools in CAR constitutes one of the major limits to digitization and to the education of populations in digital tools.

According to voluntary national report to monitor the implementation of the sustainable development goals in 2019, while the adult literacy rate is 58,9%, the share of schools with access to electricity is 3% and none have access to the Internet. In total, there are 650 Internet users in the CAR for approximately 000 million inhabitants, with a general penetration rate of 5% in January 14. The CAR is at the bottom of the world rankings of the main social networks with 2,5% penetration rate.

A reform that will only benefit a minority

In this context, the adoption of bitcoin as an official currency will reveal the country's digital divide. The blockchain economy can be beneficial, but it requires significant human, material and financial investment. Otherwise, it will become an elite model whose impact will be limited to wealthy, digitally literate city dwellers.

Finally, it is at the same time too early to confirm the promises made at the launch of bitcoin, but also, too early to definitively condemn it after the announcement of the new Sango project...


Idriss Miskine Buitchoho, Researcher at the Maurice Hauriou Center for Research in Public Law and Political Science, Paris City University

This article is republished from The Conversation under Creative Commons license. Read theoriginal article.

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