Why the Crypto Community Is Cautious About the Central African Republic’s Crypto Initiatives? (#113 - 16 July 2022)

Earlier this year the Central African Republic became the second country in the world to adopt Bitcoin as legal tender and announced the launch of the Sango, the country’s new crypto-themed initiative. This was a curious development considering the country’s extreme levels of poverty and significant infrastructure gaps.

What prompted this move? And why has the reaction of the global crypto community been relatively muted so far??

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In late April, lawmakers in the Central African Republican parliament unanimously passed a bill that legalized Bitcoin as legal tender in the country.?

The move saw the Central African Republic (CAR) become the second country in the world to elevate Bitcoin to legal tender status.

As we covered here last year, El Salvador made history with their landmark Bitcoin Law. Now, Bitcoin will sit beside the regional Central African CFA franc as a nationally recognized currency and form of legal tender.?

However, even the crypto community, normally very vocal on such developments, was relatively quiet this time.

The CAR is a country that is notoriously corrupt, annually ranking near the bottom in Transparency International’s Corruption Perceptions Index. In addition, in the most recent UN Human Development Index, which measures countries around the world by life expectancy, literacy rates, and standards of living, the CAR was ranked 188th out of 189 countries. And according to the World Bank, roughly 71% of CAR’s 5.4 million inhabitants live below the international poverty line.?

In addition, the CAR, which contains tremendous diamond, gold, and other mineral deposits, is known to be full of Russian mercenaries who run parts of the economy.

The country also has significant infrastructure gaps. Whilst the CAR’s government has indicated that Bitcoin adoption will make the transfer of money easier between citizens, only 7% of the population has internet access, and electricity coverage throughout the country is unreliable.?

And in a shocking development, in its rush to make Bitcoin legal tender, the CAR government neglected to disclose its plans to the Bank of Central African States, a regional central bank for the six countries that use the Central African CFA franc.?

A bit of background is useful here.

The CAR has been gripped by violence and political/economic instability for decades. Since 2013, the country has seen an ongoing crisis involving multiple rebel factions, government corruption, sectarian violence, and the arrival of the Russian mercenary outfit the Wagner Group, with the U.N. sending in multiple peacekeeping forces to stem spiraling levels of war crimes and crimes against humanity.?

The role of the Wagner Group here is interesting, to say the least. Arriving at the behest of the government to train and modernize it's military back in 2017, the Wagner Group has extensive experience in several other wartorn countries, from Ukraine to Syria and Libya.

And in exchange for training its soldiers, the Wagner Group and several Russian mining consortiums were granted handsome concessions to begin extracting and exporting the CAR’s copious diamond deposits.?

But reports have also circulated that Russian mining outfits have struck similar deals to extract diamonds and other rare minerals from rebel-controlled territories, actions that are outlawed under the Kimberley Process, an international convention to block armed groups from profiting off of the diamond trade and which traces its roots back to the role of “blood diamonds” in fueling Sierra Leone’s decade-long civil war in the 1990s.?

For all the reasons above, it is not a surprise that the crypto community has been cautious about celebrating the adoption of Bitcoin as legal tender by the CAR.

Concerns that some of these Russian mercenaries and corrupt politicians may try to use Bitcoin and digital currencies for illicit purposes have been discussed in crypto circles.

Whilst El Salvador is far from being a perfect country (there is no shortage of accusations with the current government there, from corruption and authoritarianism to violence and poverty), there was at least a very clear objective with the use of Bitcoin when it came to remittances (remittances make up over 24% of El Salvador’s GDP), with users paying relatively high fees for remittances in a country that is dollarised, i.e. in which remittances do not even have to go through currency conversion.?

In another interesting move, last week the CAR government announced plans to begin rolling out its own digital currency platform in an effort to boost its financial sector.?

Known as Sango, the project is being positioned as the CAR’s first major crypto initiative, sharing its name with the country’s second official language after French.?

As for specifics, the Sango initiative aims to attract global crypto businesses and talent, accelerate Bitcoin adoption amongst the local population, and begin developing national crypto regulatory frameworks and infrastructure.

A national digital currency - Sango Coin - and a metaverse platform - Crypto City and Crypto Island - are also in the works.

Since the adoption of Bitcoin as legal tender in April, the CAR government has emphasized that financial inclusion and reducing some of the frictions and barriers to entry in the country’s underutilized banking sector are the primary drivers behind the country’s new crypto-friendly policies.??

But as we saw in El Salvador, international bodies like the IMF and the World Bank have come out against the move, stating that they will not provide any support for the Sango rollout, citing concerns over transparency and the threats that Bitcoin adoption and Sango pose to financial stability in the country.

Regardless of our views on the CAR initiative, the close-minded approach that both the IMF and World Bank have shown is disappointing, though not surprising.

This is even more surprising as the Central African Republic has allegedly received approval for a $35M development fund from the World Bank for the digitalization of the public sector. Yet the World Bank is not part of the Sango initiative. It could be argued that this provides the government with an opportunity to leverage the latest technology and leapfrog traditional pathways to development.

One interesting aspect of the Sango project, though, revolves around the country’s abundant mineral resources that we touched on earlier, with plans to tokenize the CAR’s natural resources and open up greater international investment access via the blockchain.?

By the end of 2022, the CAR will be the first country in Africa to create a dedicated legal framework for digital assets, with the state providing access to the country’s natural resources such as gold, diamonds, uranium, iron ore, copper, coltan, cobalt, nickel, lithium, and petroleum.

Source: Sango

This is a great example of how blockchain and tokenisation can allow access and democratisation to a country’s natural reserves, something the CAR has incredible supplies of.?

The country’s treasury will also have a dedicated Bitcoin reserve, and blockchain will be used to enable digital identity, with Sango providing services ranging from citizenship and e-residency to land ownership.

Source: Sango

Meanwhile, the metaverse platforms, Crypto City and Crypto Island, appear to be slated to facilitate the country’s crypto ecosystem and serve as a hub for users to buy, sell, and trade tokenized assets.?

As for Sango Coin, the nation’s treasury plans to hold 20% of the proposed asset.

Source: Sango

The launch of Sango is just the latest in a series of crypto-themed developments taking place around the African continent, which has seen some of the highest levels of digital asset adoption in the world.?

?Market growth vs. retail share of market vs. total market size by region, Jul ‘20 - June ‘21; Source: Chainalysis

?

Despite recent restrictions on banks and financial institutions from facilitating crypto transactions, crypto-asset ownership in Nigeria is incredibly robust, with the country regularly leading the world in global Bitcoin P2P transactions.

Source: World Economic Forum

And earlier this year, Cameroon and the Democratic Republic of Congo announced plans to adopt the TON blockchain in an effort to stimulate national economic development.??

Time will tell whether the CAR’s experiment with Bitcoin and the Sango are made with genuinely good intentions.

In theory, Sango could catalyse crypto adoption, financial inclusion, and broader economic development throughout a severely impoverished country. The positive impact could be indeed remarkable.

But that requires a clear vision, exceptional execution capabilities, and proper governance and transparency. Whether the CAR (and its leaders) will offer that remains to be seen.?

Let's all hope they will and prove the sceptics wrong.

Definitely a development to follow.?

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