Crypto as Currency: the journey of countries using Bitcoin as legal tender

What do El Salvador and the Central African Republic (CAR) have in common? Both have permitted cryptocurrency to be used as legal tender. Does the concept work? We take a look at the situation as of early 2024. 

 

Crypto as legal tender

Dollars, euros, pounds, rupees, yen, and Bitcoin. While many places in the world allow cryptocurrency trading and for products to be bought using crypto, it is rare to see crypto as legal tender. That is slowly beginning to change. The list of countries is small, but the eyes of the world are on them.  

 

El Savlador

El Salvador was the first country to adopt Bitcoin as legal tender. In 2021, hoping to increase investment, assist citizens with remittances and expand financial accessibility, El Salvador created a Chivo Wallet. This wallet could work with fiat currency and with Bitcoin, allowing citizens to transfer funds and pay for items with BTC. 

As of 2024, Argentina has said that they have been watching El Salvador carefully, and are considering a similar model. 

 

Central African Republic

In April 2022, the parliament of CAR voted for Bitcoin to be legal tender. As one of the poorest countries in the world, their aim was to have BTC currency put CAR ‘on the map of the world’s boldest and most visionary countries’. What was created was a Sango Coin, a Bitcoin-backed cryptocurrency. The public could buy into the currency, with following phases allowing citizens to use Sango Coin to purchase things from the government such as residency, citizenship etc. 

In 2023, CAR expanded their use of the crypto ecosystem by legalizing tokenization of its land and natural resources. 

 

Which countries are almost there?

World banks have been looking at the experiments with BTC legal tender carefully, but around the time that El Salvador made their announcements, a few other countries expressed strong interest in the idea. Jamaica, St. Kitts and Nevis and the Kingdom of Tonga all voiced support for the same plans in their own countries. The latest update was that Tonga planned to make cryptocurrency legal tender by the end of 2023, but there hasn’t been an update on plans since then. As for the others, there hasn’t been much progress since 2022. 

 

Honduras was another country that looked bullish about BTC as legal tender after El Savlador and CAR’s announcement. Honduras created a ‘special economic zone’ called Próspera on the island of Roatan, where Bitcoin is officially recognized as a legal tender. The name Próspera came from the US-backed company that backed the idea, and the newly created Zone of Employment and Economic Development (ZEDE) allowed them to govern a privately run city. However, the Honduran government repealed the law that made ZEDEs possible in 2022, and flagged concerns about Prospera disrupting indigenous local communities. In retaliation, Propsera is suing the government for $11 billion, claiming significant financial losses.

What have the results been?

As the previous example with Honduras demonstrates, these experiments are not always smooth. That isn’t a surprise given that these are the very first economies in the world to do this. This becomes increasingly tricky when the countries already have existing economic difficulties. 

In the case of El Salvador, the main result has been a lack of uptake. The government has made significant impacts in educating its population on crypto, but external studies (including one by Yale School of Management) have shown that citizens are hesitant to use the Chivo wallet: only 1.7% of Salvadorans engaged with Bitcoin for remittances. Success may be limited, but the learning has begun.  

As for CAR, their main barrier to acceptance was infrastructure. Only around 10% of the population had access to the internet at the start of 2023, making widespread Bitcoin adoption hard. In March 2023, the law that allowed cryptocurrency to be legal tender was repealed. The technology that allows tokenization of land and resources is still possible through Sango Coin. 

What about Central Bank Digital Currencies?

Countries that have not accepted crypto as legal tender do not necessarily reject the usefulness of crypto currencies. Instead, many countries are interested in Central Bank Digital Currencies (CBCDs). These are virtual versions of fiat currency already issued by central governments, and around 130 countries are exploring their potential. 

It is this area that we are likely to see the most advancement, as countries still have an element of control and regulation that they feel like they are losing with blockchain and crypto. So far, countries such as China, Nigeria, Russia, Brazil and the Bahamas are striding ahead with CBDs, and the European Union/Eurozone is currently planning to launch a digital euro. 

 

Takeaways

The adoption of cryptocurrencies by El Salvador and the Central African Republic as official currency has seen significant hurdles, from low public update to infrastructural limitations. Their experience provides crucial insights for other nations considering a similar move, of which there are still many, despite the downfalls. Meanwhile, the rise of CBCDs offers a more controlled and manageable alternative for economies, and the world will look to the Digital Ruble, the digital RMB or the JamDex (Jamaica) to see how these adapt and function with traditional currencies.