Is Central African Republic’s crypto push linked to Russia?
The Central African Republic (CAR) declared staunch allegiance to Russia on Monday, raising questions on the implications of the two countries’ growing proximity.
CAR’s pledge of allegiance comes amid speculation that its recent adoption of Bitcoin was a means of opening up the financial system to Russian companies after they were locked out by global sanctions.
CAR adopted a law in July to introduce Bitcoin as legal tender, but the law was subsequently frozen following pressure from the country’s regional partners in the Central African CFA monetary zone.
“People in the Central African Republic understand well the situation in which Russia finds itself and sympathise with it, just as the Russian authorities once supported the CAR in a difficult situation,” the chairman of CAR’s parliament, Simplis Sarandji told state-backed RIA Novosti news channel this week.
The introduction of Bitcoin in the war-torn country baffled onlookers, as just 14% of its 5m people enjoy electricity access, while only nine out of ten Central Africans have access to broadband or 4G phone connection, a prerequisite for Bitcoin based transactions.
Growing Russian ties
CAR turned to Russia in 2017 to bolster security after President Faustin-Archange Touadéra became dissatisfied with the inability of UN peacekeepers to extend state security beyond the capital city of Bangui.
Since then, Russia has wielded its influence in CAR to extend into other African countries and also broaden its interests into activities like gold mining and cyberwarfare.
Ola Altose, CEO of KoinKoin, an Africa-focused crypto company, speculates that there are two possible ways that the introduction of the digital currency could be linked to Moscow.
The first is a way of laundering money, as most international banks will no longer accept Russian rubles, making it difficult for the heavily sanctioned country to transact with the rest of the world.
A second use case could be for Russia to send bitcoin to CAR in exchange for local currency, the Central African Franc (XAF), which would then be exchanged for dollars.
But Altose says this would be a “fruitless attempt” to circumvent sanctions.
“I’m not sure that would even work. They would still need to use the banking rails and it’s very easy to spot large transactions of bitcoin.”
Russia may also be using bitcoin to repatriate capital from its mining activities in CAR.
The Wagner Group, Moscow’s paramilitary group with widespread operations in Africa, could be selling gold and diamonds in exchange for bitcoin, which can easily be sent back to Russia.
Mercenaries from the private Russian security outfit with links to Vladimir Putin have helped CAR’s government gain the upper hand against rebels and shielded the president from an attempted coup.
“It’s certainly very possible,” said Altose. “Whether or not it’s happening, I have zero information – I can only speculate”.
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Crypto hub
President Touadéra says the controversial move aims to lay the foundations for CAR’s digital economy, thereby circumventing the formal global economy which has sidelined one of the world’s poorest countries for decades.
“The alternative to cash is cryptocurrency,” he said. “For us, the formal economy is no longer an option”.
The government is designing its own cryptocurrency, the Sango Coin, along with plans to transform the mineral-rich island into a tax-free crypto hub, with opportunities to invest in mining and other industries using Bitcoin.
The CFA Franc has declined by 13.3% this year, ranking as the continent’s fifth-worst-performing currency. Because of its parity with the euro, Francophone Africa’s currency has been losing value against the dollar.
The new digital currencies could help hedge against local currency risk and enable transactions with other African countries.
“If the CAR wants to do more business with other African countries, then of course bitcoin is certainly the way to go,” he said.
The continent is currently home to 48 currencies, yet Bitcoin has seen surging popularity as both a store of value and a means of trade.
Abortive launch
Despite the government’s bold announcements there is little evidence that bitcoin is being meaningfully used in the CAR, as the country already had access to digital currency via mobile money networks.
Altose says that his company KoinKoin, which processes up to $10m of bitcoin transactions in Africa per month, has not seen much interest from traders in the CAR compared to growth in other Central African markets including Chad and Cameroon.
This may be because both regulators and multilateral institutions have pushed back against the adoption.
The IMF weighed in saying that the CAR’s adoption “raises major, legal, transparency and economic challenges.”
The IMF insists that the CAR’s Bitcoin adoption will not solve its economic woes, and points to the fact that major economies are steering clear of the digital currency.
“The Central Bank has taken the view that if the IMF is not happy then they should also oppose it,” Altose says.
The Bank of Central African States (BEAC), the region’s central bank, said in April that the CAR’s decision to adopt bitcoin was “null and void” because it had violated regional law.
Abbas Mahamat Tolli, BEAC governor, wrote: “This law suggests that its main objective is to establish a Central African currency beyond the control of the BEAC that could compete with or displace the legal currency in force in the CEMAC and jeopardize monetary stability”.
CAR’s bitcoin supporters, however, argue that the regional bank is keen to cling on the (mostly stable) XAF which is pegged to France and is often described as being “colonial money”.
Indeed, analysts argue the move towards bitcoin may be driven by the CAR’s desire to move further away from its former colonial ruler and its control over the country’s currency.
This mirrors similar developments in Mali, Burkina Faso and Guinea where successive coups have installed military regimes that have largely rejected France, pivoting towards Russia instead.
Bitcoin’s future
Despite opposition from the IMF and BEAC, CAR looks set to forge ahead with plans to adopt bitcoin.
“The government views bitcoin as something that will encourage young people in the country so I think they will go ahead with it anyway,” he said.
“I think they will get their hands on a variety of different apps which will allow them to exchange XAF directly. We expect trade to grow if it’s possible to transfer XAF across borders between other Central African countries. Slowly initially, but we expect this to increase significantly over the coming years”.
CAR also lacks regulatory frameworks and know your customer (KYC) checks and balances, which could mean the cryptocurrency is easily used for illicit purposes.
Indeed, Russia could well be using cryptocurrency to dodge sanctions without the government’s explicit consent.
“It’s very complex, especially with regards to regulatory bodies,” said Altose.
Cryptocurrency regulations, such as those recently introduced in South Africa, require handlers in the country to apply for a licence in order to operate legally.
“Are they [CAR] doing that – I’m not sure that they are. Is it something they could do if they wanted to – yes,” Altose remarks.
Source: African Business
