Important takeaways from Bitcoin’s adoption as legal tender in El Salvador and the Central African Republic
El Salvador and the Central African Republic have had different experiences with adopting Bitcoin as legal tender. This has sparked interest in which countries could be next to embrace cryptocurrency.
El Salvador made history in September 2021 when it became the first country to adopt Bitcoin as legal tender. President Nayib Bukele announced this decision at the Bitcoin 2021 conference in Miami. The goal was to address economic challenges and take advantage of the growing trend of digital currencies. However, the rollout faced operational and regulatory challenges, including issues with the government’s digital crypto wallet, Chivo Wallet, and skepticism from the public and international financial experts. The adoption of Bitcoin led to volatility in El Salvador’s economy, which was already strained by the COVID-19 pandemic.
Following suit, the Central African Republic (CAR) adopted Bitcoin as an official currency in April 2022, becoming the first African country and the second globally to do so. The country, which is one of the least-developed nations with ongoing challenges related to rebel violence, approved the adoption unanimously in its parliament. This move sparked both concerns and excitement, with experts and international bodies like the IMF cautioning against it due to the lack of a legislative and governance framework.
So, what is the current situation in these countries, and which countries could be next to adopt Bitcoin as legal tender?
In El Salvador, the adoption of Bitcoin and the launch of the Chivo Wallet have revealed a complex scenario. A study by Yale researchers sheds light on the Salvadoran population’s engagement with Bitcoin and Chivo Wallet. While there is significant awareness and initial adoption, the actual utilization of the digital currency falls short of expectations. Incentives like a $30 Bitcoin bonus and transaction fee waivers weren’t enough to sustain app usage. Many people who downloaded Chivo Wallet didn’t use their bonus, and most stopped using the app after spending it. Trust issues and a preference for the anonymity of cash were cited as reasons for not downloading the app. This reluctance among Salvadorans to fully embrace digital currency contradicts the government’s expectations.
The broader implications and effectiveness of El Salvador’s Bitcoin adoption are still debated. Some, like Mónica Taher, a former Salvadoran official, believe it’s too early to label the policy a failure and anticipate long-term benefits. On the other hand, digital activist Mario Gómez suggests that the policy might be more about providing a safe haven for cryptocurrency firms against international regulation. President Bukele portrays Bitcoin as a symbol of economic freedom and a tool for rebranding the country. However, concerns over other freedoms, particularly regarding the government’s authoritarian measures, have been raised.
In the Central African Republic, the adoption of Bitcoin was part of a visionary plan to tokenize land and natural resources through the Sango blockchain project. The government aimed to leverage digital currencies to unlock new opportunities in a country plagued by economic instability and political violence. However, the CAR faced severe infrastructural challenges, including a lack of internet access among its citizens. Regulatory hurdles and speculation about geopolitical motives behind the adoption further complicated the situation. As a result, the CAR reversed its decision in March 2023 due to practical challenges, a lack of public trust, and unfulfilled political promises.
Looking ahead, several countries, particularly in Latin America, are showing interest in adopting Bitcoin as legal tender. Panama and Mexico are among the nations considering this possibility. Panama initially made strides towards recognizing specific cryptocurrencies, including Bitcoin, for taxes and other obligations. However, the proposed law was struck down by the supreme court. In Mexico, Senator Indira Kempis proposed a bill to officially recognize Bitcoin as a form of payment. This effort aims to address limited access to financial products and education. However, resistance from established financial institutions poses a challenge.
The interest in adopting Bitcoin as legal tender is driven by factors such as hyperinflation in some economies and the limitations of fiat currencies. Bitcoin’s appeal lies in its resistance to inflation, transaction efficiency, and accessibility, particularly for the unbanked population. However, challenges like volatility, technical complexity, and reliance on internet connectivity remain significant hurdles. The future of Bitcoin as a widespread legal tender is uncertain, but its growing recognition and consideration indicate its potential in the global economy.
