The Central African Republic has become the second country in the world after El Salvador to adopt Bitcoin as an official currency. The experience of El Salvador fully reveals why this step will not have a significant impact on the economic situation of the country. Bitcoin quotes also ignored this news.
In the fight against inflation, El Salvador withdrew its own currency from circulation in the early noughties, replacing it with the US dollar. This made it possible to stabilize the economy, but led to a number of negative consequences.
Salvadorans are actively immigrating to more developed countries in search of work, continuing to financially support their relatives. In 2019, the volume of transfers to the homeland amounted to 1/5 of GDP or $6 billion. From 5% to 10% of this amount was appropriated by international payment systems, the lion’s share of which went to Western Union. The President of El Salvador, Naib Bukele, called one of the key goals of adopting Bitcoin to reduce the costs of cross-border transfers and reduce the impact of the US dollar on the economy.
To facilitate the adoption of Bitcoin, the government has released the Chivo wallet, which allows for an exchange between cryptocurrency and dollars without commission. An information campaign was launched on television and radio, and a $30 bonus for each user was used to stimulate the population. The economic stimulus was quite significant for a country where this amount is equivalent to 0.7% of the average annual income per capita.
Despite all the efforts of the government, the main motive of citizens was the cashing out of the bonus, followed by the refusal to use the crypto wallet. The US National Bureau of Economic Research (NBER) conducted a study that revealed negative trends. 1,800 people were interviewed with a confidence interval of 95% and a sampling error of 1.94%. So it turned out that 61% of respondents no longer turned to Chivo after using the bonus.
21% of respondents have heard about Chivo, but have not downloaded the app.
One of the key reasons they called the lack of a mobile phone with Internet access.
Low literacy of the population and lack of access to information technologies are one of the key reasons for the failure of the Bitcoin implementation campaign. Salvadorans are used to paying in cash and do not trust or do not understand new technologies. Before the launch of Chivo, more than 70% of respondents did not use banking services and almost 90% did not use mobile banking.
As a means for conducting cross-border payments, Chivo is also not in demand. In February 2022, only 1.6% of money transfers were received using a digital wallet, and this is for respondents with an application installed on their phone.
It is safe to say that, for the most part, Salvadorans were simply not ready for new technologies that cause misunderstanding and rejection. So what should we expect from the CAR, which is one of the poorest countries in Africa with an annual GDP of $2.4 billion?..