1 – Why now and what for?
Financially, all possibilities of aid for the Central African funds have been blocked for nearly ten years. At the end of July 2021, the United Nations Security Council extended by one year the arms embargo imposed since 2013 on the Central African Republic as well as the travel ban and the freezing of the assets of certain persons and entities designated by the Committee of penalties.
Many countries and institutions have followed suit, in response to the instability and violence that have shaken the country since the overthrow of François Bozizé. Budget support from France? Financial support from the World Bank and the IMF? Everything is frozen. The Central African authorities, who hope to be able to solicit financial aid from Russia, have begun to scrutinize all possibilities in an attempt to bail out the state coffers.
In fact, if Russia must grant financing to the Central African authorities, the transaction must absolutely go through the European Central Bank (ECB) for the conversion of rubles into euros. Because the currency currently in force in the Central African Republic is the CFA franc, which is pegged to the euro and has a fixed parity and is guaranteed by the French Treasury. This transaction must then go through the Bank of Central African States (BEAC) for the conversion of the euro into the CFA franc. However, with cryptocurrency, the operation can be done directly without an intermediary, instantly and at no cost. Hence the attraction of a country under embargo for this kind of currency.
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The steps to make bitcoin an official currency began almost a year ago. But they accelerated over the weeks when the country’s traditional financial supply routes became more blocked. Bangui has just announced the launch on July 3 of “Sango”, its new digital currency system powered by blockchain technology [technologie de stockage et de transmission d’informations sans intermédiaire]. “The Sango, a catalyst for the tokenization of the country’s vast natural resources, is the most progressive economic initiative in Africa and elsewhere,” reads the statement released by the Central African Presidency on June 27. In other words, the new digital monetary system promises to add value to the country’s natural resources in the digital world, materializing them in tokens (tokens) exchangeable on a blockchain.
2 – How is the new “currency” supposed to work?
A digital currency based on blockchain technology that claims to ensure the security, transparency and reliability of transactions, cryptocurrency has no physical existence or legal tender. It thus escapes the control of the Central Bank.
In the Central African Republic, this digital currency is intended to be used alongside the CFA franc – the regional currency supervised by the Bank of Central African States (BEAC). Concretely, Central Africans will now be able to carry out transactions with bitcoin, if they have an internet connection and a digital wallet (wallet) or access to a cryptocurrency platform, the use of which was legalized two months ago.
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Another change: any economic agent is required to accept this cryptocurrency as a means of payment when it is offered for purchase. And if the CFA franc remains the “reference currency”, as the Central African presidency explained at the end of April, the State must guarantee “automatic and instantaneous convertibility” of the cryptocurrencies used in the Central African Republic – and vice versa.
According to experts, the use of cryptocurrencies, which comes with anonymity, increases the risks of money laundering or terrorist financing. The volatility of digital currency – linked to the fact that bitcoin fluctuates according to the law of supply and demand – also creates risks. As for the internet penetration rate, which is around 11% in the country, it leaves room for great uncertainty about the potential success of the initiative.
3 – Is there a precedent in the world?
The Central African Republic is the second country in the world to have taken such a decision after El Salvador, on September 7, 2021. In this Latin American country which bought 550 bitcoins (the equivalent of 22.4 million dollars during then) from October, the penetration of the new currency does not have the expected effect for the moment.
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A recently published study by three researchers from the Universities of Chicago, Pennsylvania and Yale estimates that to date in El Salvador, 20% of companies accept cryptocurrency, the majority of them being large companies. “We also find that on average, only 4.9% of all sales are paid in bitcoin, and that 88% of companies turn their bitcoins into dollars, without storing them in Chivo Wallet. [l’application conçu par le gouvernement pour opérer des paiements en bitcoin, ndlr] “, indicates the authors of the study.
El Salvador has chosen to keep the dollar in parallel. In this country where 64.6% of the population has access to mobile internet, bitcoin can be used to pay for purchases, repay a loan or even pay taxes. Unlike the Central African Republic, El Salvador’s decision did not give rise to the same negative reactions from its neighbors because the region is not economically integrated and is not subject to any regional regulator. El Salvador nevertheless remains dependent on the dollar and observed by multilateral institutions such as the IMF, which has criticized its choice and offered financial assistance against the abandonment of cryptocurrency.
Good what the results are mixed and the sudden announcement, the country led by Nayib Bukele has partly prepared its conversion to bitcoin by launching the Chivo Wallet application in June 2021. The launch of the application was coupled with a financial incentive when it was downloaded (30 dollars in bitcoin) and gave rise to an extensive promotional campaign among the population via social networks and the media. However, Chivo Wallet has not won over the crowds (50% of the population has downloaded it according to Salvadoran authorities, but few use it on a daily basis) and is still subject to bugs and fraud.
Moreover, El Salvador, which hopes to become a leader of the bitcoin model in the world, has not defined clear regulations on the issue.
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4 – To what risks is Bangui exposed?
At the macroeconomic level, the Central African Republic is exposed to difficulties in raising funds and borrowing. The Salvadorian experience shows that the choice of bitcoin pushed rating agencies like Moody’s or S&P to drastically lower their sovereign rating. As a result, El Salvador’s borrowing capacity is now severely constrained by borrowing rates set at 24%.
The Central American country thus attempted to issue bitcoin bonds in order to raise a billion dollars, half of which would be used to buy cryptocurrencies. As well as the financing of Bitcoin City, a metropolis dreamed up by Nayib Bukele which would be dedicated to cryptoactive mining farms. But this initiative has not met with the hoped-for success and has been postponed for the time being.
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On the regulatory level, the country faces a legal void that it must fill. “Clear taxonomies need to be established to define market entry requirements. The regulator – who must also be specifically designated – must subject operators to anti-money laundering obligations and oblige them to obtain a license”, indicates Sofia El Mrabet, lawyer, member of the public policy incubator Je m committed to Africa and fintech expert.
“There are 16,000 cryptocurrencies in the world and 80% of them are scams. If it wants to succeed, the Central African Republic must therefore quickly regulate the sector to avoid scams which would contribute to feeding the fear of a population which is not educated in finance and even less in cryptocurrencies”, abounds Nelly Chatue-Diop, founder of Ejara, a Cameroonian start-up that is developing a crypto wallet connected to mobile money services.
5 – Who does Touadéra rely on to bring his project to fruition?
At the forefront of the process of formalizing cryptocurrency, we find the minister adviser to the Central African president in matters of major works and investments, Pascal Bida Koyagbele. Very close to Faustin Archange Touadera since his accession to power in 2016, Bida Koyagbele is one of those who brought Bangui closer to Moscow.
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He has all the power to carry out so-called investment projects, with in his wake, Russians who gravitate around the Central African president. It was he who met blockchain specialists in the United States to work on the Central African project.
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At his side, we also find Gourna Zacko, the Central African Minister of Posts and Telecommunications. It was he who defended the bill in the National Assembly. As for the Cameroonian Émile Parfait Simb, who has become very close to Touadéra, he is one of those who have matured the idea. He even obtained a diplomatic passport with the official title of special adviser to the president of the National Assembly and patron of the ruling party, Simplice. Matthieu Sarandji.