CAR has announced its adoption of Bitcoin as a legal tender.
According to reports, the move was likely spurred by the CAR’s deepening security relations with Russia. It thus appears both as a potential step towards circumventing current international sanctions against Russia and further reducing French influence by moving the CAR away from the CFA franc zone.
The adoption of a volatile cryptocurrency will have far-reaching consequences, threatening the CAR’s position in the Economic and Monetary Community of Central Africa (CEMAC) block.
The CAR is a member of the CEMAC region (Cameroon, Chad, CAR, Equatorial Guinea, Gabon, Congo-Brazzaville) and the CFA franc zone, with its official currency, the CFA franc, pegged to the euro and backed by the French Treasury.
The CAR’s decision to adopt the bitcoin as legal tender could thus trigger sanctions by the CEMAC, which would both limit the CAR’s access to deposits held in CEMAC accounts and increase the risk of domestic debt defaults.
The CAR will also face challenging bitcoin implementation issues. The CAR is a very small economy, accounting for roughly 2.6% of overall CEMAC GDP, and years of civil war has left most of the population displaced and poor.
Meanwhile, the country also lacks sufficient infrastructure (such as access to electricity, internet, and mobile coverage, combined with a large digital divide) to be able to attempt to implement a volatile cryptocurrency as a generalised form of legal tender.
The IMF has previously stated its concerns about the adoption of bitcoin as legal tender, which could jeopardise the CAR’s standing under the SMP and future disbursements, significantly exacerbating the country’s problems in meeting its fiscal financing needs.
El Salvador’s pioneering use of Bitcoin indicates limited everyday use alongside increased default risk, suggesting a similar path for the CAR