Cryptocurrency Adoption in Developing Countries
Cryptocurrency is often perceived as the domain of wealthier states and their affluent citizens. This view is a result of the apparent barriers to entry in the form of functioning and up-to-date technology, infrastructure for mobile networks and internet, and the consistent supply of electricity required to power these things, and it holds mostly true given that most crypto holders and creators exist in wealthier first world countries. Cryptocurrency at first glance does not have much to offer to the third world, nor can it seemingly be sustained there.
Despite this, there are two third world countries that have come to accept cryptocurrency (Bitcoin specifically) as legal tender, being the Central African Republic and El Salvador. Both countries took this action in hopes that it could lead to economic revitalisation, usurp their traditional currencies and place them at the forefront of this wave of innovation as states that are crypto-friendly and willing to work with investors. Their foray into cryptocurrency is valuable, as it showcases not only the challenges faced by third world countries in utilising it, but the boons and potential growth they can experience.
The case of El Salvador – A YEAR’S REFLECTION
In relation to the formal legal recognition of cryptocurrency, El Salvador is the CAR’s senior by one year. By no means are they a wealthy nation, but sitting at 135 out of 216 for states’ GDP per Capita, it is a decent amount wealthier than its crypto-country sibling. Enough so for most of the population to enjoy consistent access to mobile networks and the technology required to utilise this, which would be part of the logic behind their 2021 legislation pushing for crypto as legal tender.
Owing their inspiration to a large Bitcoin donation to the popular surfing town of El Zonte which was made in exchange for the ability to use it as tender in the region, the country’s history with crypto had begun in 2019. This was influential enough to the politicians of El Salvador to consider re-enacting what had occurred there on a larger scale.
In June of 2021 the President of El Salvador, Nayib Bukele, made a video appearance at the Bitcoin conference, announcing that he had planned to adopt it as legal tender in order to aid those without access to formal banks and make international remittance sending (money sent from nationals of that state in other countries sending money “back home”) easier. It was enacted less than a week later, and a call for help in implementing it was made to the World Bank. Despite their rejection, El Salvador forged ahead and purchased 400 BTC in addition to creating a wallet app for its citizens called “Chivo”.
While there are further investments into BTC specifically, the potential of cryptocurrency and what it can do stems from the Chivo wallet application. The intent behind its creation was to further enable remittances (which make up a large percentage of the country’s GDP), and it was the first step taken to move away from formal banking for people who lacked access to it. It was the first step in realising Bukele’s dream, and it had incentivised people into making use of the app. While it experienced growing pains in terms of server stability and availability on app stores for various platforms, it has been fortified and has evolved to better serve the people of El Salvador.
After only a year, roughly 20% of businesses accepted payment in BTC, and around 14% of them had actually made transactions using it. While only existing for a year means its implementation is still fresh and the effects of it over a longer term have yet to be seen, the potential for crypto use to overtake the presence of banks in a nation with thorough network coverage is beginning to show itself. The financial freedom that is offered to its citizens without reliance on banks is part of what Bukele wishes for, and it may work out with the incentives utilised by the Chivo app to get people to use it.
In spite of dips in BTC’s value, Bukele has continued to “buy the dip” using national reserves, and plans to open up a city based around a volcano that makes use of geothermal power for bitcoin mining. His announced removal of income tax within this city Is an additional bonus being used to draw investors to the country. The investment of El Salvador has not yet paid dividends, but their strategy of attempting to legitimise crypto and have it supplement their ailing currency or usurp it may work out well in the long run. Their planning looks far ahead into the future, hoping to stand alongside the likes of LCX in terms of recognised legitimacy and have crypto functions replace banking.
The case of the Central African Republic – HOPE FOR THE FUTURE
The Central African Republic (CAR) is a landlocked country with the 5th lowest GDP Per Capita in the world. In possession of great natural resources, it lacks the capital needed to extract and utilise them. With political instability being rife in the region and other states’ investments often resulting in less than favourable results for the CAR over time, they have turned to cryptocurrency and its enthusiasts as a group of potential investors without allegiance to any particular states.
Deciding to legalise the use of BTC as legal tender in 2022, it is possible that the statesmen took inspiration both from El Salvador and Nigeria’s own launching of the ‘eNaira’, a digital currency made to complement its physical Naira currency. The Central African Republic not only made crypto legal tender but very quickly launched their own cryptocurrency, Sango. They have attempted to draw investors with far greater fervour than El Salvador, offering incentives such as citizenship and the offer for businesses abroad to operate “digitally” within CAR’s boundaries to make use of the 0% tax on all crypto transactions they hold.
They have gone as far as to promise the construction of a city on Sango’s official site, in addition to land ownership. While the CAR’s currency is so early into its promised 10 year cycle that it is hard to state results, it can be at least seen that purchases have been launched. They intend for this to revitalise their economy enough to state that any Sango purchased cannot be converted back into other coins (and instead functions as CAR currency) which may act as a turn-off, but for wealthier investors and company ventures the promised land ownership may prove far too tempting a prospect. For a country rich in natural resources that otherwise are trapped with no use, touting it in front of potential investors and tying it to the promise of investment in their economy is a smart move from the CAR, and as long as they can keep up the momentum and strength with which they announced this project, it should pay off for them.
Where do we go from here? – GLOBAL POTENTIAL
While these countries and their leaders have identified the potential of cryptocurrency, it holds true that they have perhaps done so too early for them to be able to fully utilise that potential already. The backlash El Salvador and the Central African Republic have received from larger nations (while somewhat hypocritical of them in regards to environmental concerns) may make other nations initially hesitant. However, the financial legitimacy being given to crypto via ventures similar to LCX that work in tandem with pre-existing banking and financial authorities may in future remove this roadblock and destroy stigmas around the subject. If this were to happen, offers similar to the CAR’s Sango and its offered citizenship become much more attractive to both companies and entrepreneurs alike.
But El Salvador and the relative success of El Zonte does show that the injection of investment received can revitalise regions, regardless of the use of crypto by locals. Even if ideally they would make frequent use of it, the tourism created by areas where it is legal tender is sufficient for economic revitalisation, making the crypto path lucrative as a seasonal source of income for states that otherwise rely on remittances. With many third world countries citing remittances as a major source of income
It will take time for these two countries to truly start profiting, but once they do it is likely their peer countries, who (in the words of the CAR’s president Faustin-Archange Touadéra) feel that “the formal economy is no longer an option”, will be able to follow suit by making crypto legal tender. If even much of the CAR, a consistently neglected and landlocked state, has the capacity to make use of crypto, then so too do other equally neglected nations.
