The CAR is a very small economy, accounting for roughly 2.6% of overall CEMAC GDP, and years of civil war have left most of the population displaced and poor.
The adoption of a volatile cryptocurrency will have far-reaching consequences for the Central African Republic (CAR), experts have warned.
The experts stated this in a recent analysis published by S&P Global Market Intelligence.
The analysis was authored by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence, Jeremy Smith, Sr. Economist, Economics and Country Risk, S&P Global Market Intelligence, Thea Fourie, Associate Director, Sub-Saharan Africa Economics, S&P Global Market Intelligence, and Veronica Retamales Burford, Senior Research Analyst, Latin America Country Risk, S&P Global Market Intelligence.
According to the analysis, the move threatens the CAR’s position in the Economic and Monetary Community of Central Africa (CEMAC) block.
By adopting cryptocurrency as a legal tender, CAR had contravened the ban placed on the use of cryptocurrencies in any financial transactions in the region, the analysis noted.
Earlier in May, the Bank of Central African States (Banque des États de l’Afrique Centrale: BEAC), which is the region’s central bank, had placed a ban on the use of cryptocurrencies in the CEMAC region, of which CAR is a member.
This ban, the forum had said was placed to sustain its financial stability while also keeping its customer base.
The authors, attributing the decision of CAR to its increasing relationship with Russia, asserted that this move “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.”
There are also doubts as to whether the country can be able to implement a volatile cryptocurrency as a legal tender, owing to the insufficiency of electricity, the internet, and a large digital divide.
“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 have left most of the population displaced and poor.”
It also questioned the CAR’s commitment to the International Monetary Fund (IMF)’s staff-monitored program (SMP), which is giving the country an Extended Credit Facility.
“The CAR is on an IMF staff-monitored program (SMP) to unlock future concessional assistance under an Extended Credit Facility. Concessional funding will be required to meet pressing socio-economic and reconstruction needs.”
“The IMF has previously stated its concerns about the adoption of bitcoin as legal tender, which could jeopardize the CAR’s standing under the SMP and future disbursements, significantly exacerbating the country’s problems in meeting its fiscal financing needs,” it said.