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O n 22 April Central African Republic (CAR) President Faustin-Archange Touadéra signed a new law, published on the country’s official Facebook page, that introduced and governs “all transactions related to cryptocurrencies in the Central African Republic, without restriction.” Five days later, the Presidency announced that the country had adopted bitcoin as an official currency along with the Central African CFA Franc.

The announcement was met with surprise in Bangui and swift reproach on 29 April from the region’s central bank – the Bank of Central African States (BEAC). It promptly declared the new cryptocurrency law “null and void” because it violated the fundamental tenets of the regional bloc and would have a  “significant negative impact” on the Franc Zone.

The crypto sell-off since the start of May has caused the price of bitcoin to drop to levels not seen since 2020. CAR’s economic prowess and its decision to adopt bitcoin as its official currency is marginal in a global economic context. However, it is a signal in the midst of noise and is worthy of attention.

Bit by bit

From an infrastructure perspective, CAR is one of the least likely contenders for bitcoin adoption. As of January 2021, the country’s internet penetration rate was 11.4 percent and less than 20 percent of citizens have access to electricity. Both electricity and internet are needed to process cryptocurrency. Adopting bitcoin as the country’s official currency seems to be putting the cart before the horse in a country that is a laggard on all developmental indexes.

Infrastructure aside, a cursory analysis of the law raises some questions that will likely be clarified through further amendments and regulations. For example, Article 13 of the cryptocurrency law refers to the creation of a National Agency for the Regulation of Electronic Transactions but is scant on the details about what this agency will do except “controlling and managing all public ATMs installed by the State.” Clarification will also be needed about where cryptocurrency sits within the country’s tax regime. Article 8 states that “cryptocurrency trades are not subject to tax” but Article 16 states “all profits earned by a trader are subject to the General Tax Code.” The government will likely iron out these issues during the coming months.

The government is aware of its limited technical competency and physical infrastructure shortfalls. The president has appointed MARA, a cryptocurrency infrastructure company backed by Coinbase, to be the country’s “official crypto partner” and an advisor to the president on “crypto strategy and planning”. MARA has reportedly advised the government to boost internet penetration and speed up the roll out national identity documents via the Ministry of Public Security, Immigration, and Emigration.

Making a trade

President Touadéra cannot make any significant progress on bitcoin adoption without upsetting the Central African Economic and Monetary Community (CEMAC) that uses the Central African CFA Franc: CAR, Cameroon, Chad, Republic of Congo, Gabon and Equatorial Guinea. BEAC, the regional bank that manages the common currency, used sharp language in its 29 April statement in response to the promulgation of the cryptocurrency law.

BEAC Governor Abbas Mahamat Tolli reminded Touadéra of the BEAC statutes to which CAR is a signatory. The enactment of the cryptocurrency law is a violation of several articles that underpin the Central African CAF Franc, including that it should be the only legal tender in the region and that only BEAC can issue money and convert currency in the region. The IMF also expressed its concern about the new legislation. Its concerns centre on the “legal, transparency, and economic policy challenges” introduced by the cryptocurrency law. The fund will be working with the CAR government and BEAC to address these concerns.

There is speculation about the extent to which the Russian government and Russian private interests have influenced the government in its decision to adopt bitcoin as legal tender as part of a strategy to disrupt French influence in the region and facilitate illicit financial flows. The Wagner Group, a private military company with ties to the Russian state, has helped Touadéra tackle instability in the country and thwart an attempted coup. The group is described by the US Treasury as a “Russian Ministry of Defense proxy force, which conducts or has conducted dangerous and destabilizing operations in foreign countries, such as Ukraine, Syria, Sudan, Libya, and Mozambique.”

Civil unrest, triggering periodic spikes in political and security instability, has been going on for almost a decade. Although French and UN troops have a presence in the country, the government has failed to wrestle full control of the country from rebels mostly based in the north-east. In 2017 Touadéra signed several security agreements with Russia. This paved the way for Wagner Group’s presence in the country.

Mercenaries from the Wagner Group | Bangui, Central African Republic, 2019.
Credit: Ashley Gilbertson for The New York Times

In September 2020, the US Treasury Department imposed sanctions on eight “entities and individuals” believed to be advancing Russia’s influence in CAR. The EU followed in December 2021 and sanctioned several individuals involved in Wagner Group’s activities around the world, including CAR. More recently, Human Rights Watch has accused government forces and members of the Wagner Group in CAR of committing “grave abuses against civilians with complete impunity.”

The UN’s Human Rights Commission has long expressed concern about reported executions, torture and forced displacement of citizens; on 15 April, the UN announced that it will investigate the alleged  massacres of 10 civilians by Russian mercenaries and soldiers of the Forces Armées Centrafricaines (Central African Armed Forces – FACA) in Gordile and Ndah villages. The investigation will take several months and likely lead to targeted sanctions if the allegations are verified and corroborated.

Crypto calculations

The BEAC and IMF are concerned that criminal groups could use bitcoin to launder money and fuel regional instability by sponsoring terrorism. These concerns are not far-fetched if one looks at the Central African CFA Franc region. CAR’s conflict is almost a decade old; Cameroon has seen tensions between Anglophone separatists and the government lead to the death of at least 6,000 individuals and displace almost a million citizens; and Chad continues to fight Islamist rebels that are responsible for the death of former president Idriss Déby on the frontline last year.

Half of the six countries in the monetary union face persistent security threats that have the potential to destabilise each national government. The entire region will pay the price if the anti-government forces access more financing and/or military equipment. Tracking financial flows is an important aspect of mitigating this threat and CAR’s adoption of the cryptocurrency law significantly reduces BEAC’s ability to do this.

The Central African CFA Franc, created on 26 December 1945 by General de Gaulle’s decree, was meant to foster economic integration among member states and maintain Françafrique’s ties to France in the post-colonial era. The union’s utility and underlying principles have been increasingly challenged by CEMAC member states, albeit slower than neighbouring West African Economic and Monetary Union (Union économique et monétaire ouest-africaine – UEMOA). There is some speculation about whether the CAR government is drawing a line in the sand about the use of the Central African CFA Franc and France’s continued influence. The regional currency is pegged to the Euro and BEAC is obligated to hold at least 50% of its foreign assets in the French Treasury. Critics argue that this constrains the bank’s ability to catalyse regional economic development.

We expect the BEAC to maintain a firm posture vis-à-vis the CAR government. Its options include withholding CAR’s reserves, thereby preventing it from transacting internationally, and expelling the country for violating the monetary union’s principles.

Cashing in

In December 2021, 23 out of the 51 countries that had imposed bans on cryptocurrency were African. However, the global trend is leaning towards regulation, not prohibition. According to The Law Library of Congress in its November 2021 Regulation of Cryptocurrency Around the World report, 103 countries have regulated or made attempts to regulate cryptocurrencies with a focus on amending and issuing new tax, anti-money laundering and/or combatting the funding of terrorism (AML/CTF) laws.

Cryptocurrency has a use case and government institutions are taking notice. In Nigeria, the Securities and Exchange Commission recently published rules governing digital assets while the central banks in the UK and Ghana have explored the introduction of central bank digital currencies (CBDC).

Proponents of bitcoin posit it can be used as an inflationary hedge due to its limited supply and provide some insulation from devaluation of fiat currencies. Its decentralised structure can engender more trust than traditional institutions in corrupt countries where the social contract between governments and citizens is frayed or in tatters. Cryptocurrency also facilitates quick and frictionless cross-border money transfers with negligible transaction fees. Furthermore, cryptocurrency and decentralised finance (de-fi) can help governments make leaps in “banking the unbanked” and broadening access to financial services.

In Africa, fiat-based peer-to-peer (P2P) like M-Pesa has paved the way for blockchain-based P2P like bitcoin. Kenya, Nigeria and South Africa made the Top 10 of the Global Crypto Adoption Index but in the rest of Africa, as in other regions, cryptocurrency use and transacting on P2P payment platforms needs to move beyond tech hobbyists, ideologically driven investors and early adopters.

There are several exciting companies trying to make this happen across the ecosystem including Mozambican fintech start-up Empowa, Bitcoin Senegal and Nigerian blockchain hub Convexity Blockchain Hub (CBHUB). The pace of widespread cryptocurrency adoption will be fuelled by consumer education, improved internet penetration and ultimately the creation of an enabling legal and regulatory environment. The macroeconomic indicators point to more informal adoption and use of cryptocurrency and a dire need for de-fi solutions.

Cryptocurrencies undermine and challenge existing monetary and financial structures. The prevailing view is that this is a threat but it can also be an opportunity given the gargantuan scale of countries’ developmental challenges. Entrepreneurs and innovative financial services start-ups that see the potential and can deploy solutions at scale will be the real winners. Traditional financial institutions can disrupt from within and explore new services that will compliment their traditional offering in the medium term. Nimble policymakers and regulators will shape and enable cryptocurrency’s mass adoption and legal use. It started unexpectedly and imperfectly in CAR; it will do the same across the continent.