The International Monetary Fund (IMF) has stated that the adoption of Bitcoin as legal tender by the Central African Republic (CAR) raises a number of challenges for the country and the region.
The IMF which works with developing countries to promote a sound monetary policy and sustainable growth has concerns about the unpredictability of Bitcoin costs and the chance of lawbreakers utilising digital money for criminal purposes.
CAR became the first country in Africa, and the second in the world after El Salvador, to accept bitcoin as an official currency when its National Assembly passed the resolution to recognise bitcoin as a currency.
According to Bloomberg: “The adoption of bitcoin as legal tender in the Central African Republic raises major legal, transparency, and economic policy challenges. IMF staff are assisting the regional and Central African Republic’s authorities in addressing the concerns posed by the new law,” – an IMF spokesman.
The IMF has also raised questions about El Salvador’s decision to adopt Bitcoin as legal tender.
Earlier in January, the IMF executive board urged the country to remove the cryptocurrency’s legal tender status, citing “large risks associated with the use of Bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities.”
The CAR has faced backlash from the international community and its domestic oppositional forces.
The government has been accused of passing the crypto law without consulting opposition parties and the regional central bank responsible for managing the currency used by CAR and five other regional countries.
“It will be difficult to implement as CAR doesn’t have the capacity or the knowledge to enforce such a law,” opposition leader and former Prime Minister Anicet-Georges Dologuélé said, according to Bloomberg.
We lack connectivity, expertise, even power is a problem.Anicet-Georges Dologuélé
According to a study conducted by the National Bureau of Economic Research (NBER), an American nonprofit research organisation, published last month, Bitcoin adoption has failed to take off and live up to its hype in El Salvador.
More than 60% of respondents of the survey ditched the government’s Chivo wallet after using the $30 bonus.
60% of citizens did not download Chivo at all despite the fact that most of them have access to a smartphone with internet access, and majority of Salvadorans have never used Chivo ATMs that were installed throughout the country.
So, there is a possibility that crypto adoption in the CAR may turn out worse than it is in El Salvador, considering issues like internet connectivity, electricity lack, and information on cryptocurrencies.
The economy at Central African Republic
CAR is one of the world’s poorest and least-developed countries, notwithstanding its gold and diamond riches.
A 2021 report by the African Development Bank Group (AfDB) says: “COVID–19 had a limited health effect on the Central African Republic. But its economy suffered from the pandemic—both from weak global demand for agricultural raw materials and mining resources and the slowdown in economic activities and household demand from measures taken to contain the spread of the disease. The economy grew 0.4% in 2020, compared with 4.5% in 2019.”
But, a report by the World Bank released August 2021 confirms “that the country’s economy decelerated in 2020.”
With COVID-19 and renewed insecurity, it is estimated that CAR could lose four years in per capita income growth, with projections showing that per capita GDP is expected to remain at the same level in 2023 as in 2019.Wilfried A. Kouamé, World Bank economist and lead author of the report.
It adds that “In terms of outlook, the country remains highly vulnerable to debt distress, owing primarily to weak domestic resource mobilisation and export revenues. Weak external demand and private transfers, as well as an increased balance of goods deficit, widened the current account deficit from 4.8% of GDP in 2019 to 8.7% of GDP in 2020, while goods exports fell and non-oil imports were boosted by donor-financed investments in the context of the COVID-19 pandemic.”
However, like other countries and companies getting more involved with crypto, the Central African Republic believes that adopting bitcoin will help its struggling economy.
Get the best of Africa’s daily tech to your inbox – first thing every morning.
Join the community now!