The enactment of the Law n°22.004 has triggered many reactions; praised by some but, on the whole, criticised by members of the political opposition, the governor of the Bank of African Central States, the World Bank and the IMF. This is because adopting cryptocurrency as legal tender raises many issues, not only at the financial level, but also at the legal and economic levels. This contribution will examine some of these issues and answer the following questions: Is the CAR ready for the shift to crypto assets? What are the challenges raised by the adoption of this Law?

Section 1 introduces the Law and highlights some of its innovative features. Sections 2 and 3 analyse some of the challenges raised by this Law at the national level, particularly in terms of means of payment and infrastructure. Section 4 examines the implications of this Law on regional integration and Section 5 will focus on the opportunities that this Law can bring to the African Continental Free Trade Area (AfCFTA).

1 The Law n°22.004 governing cryptocurrency in the Central African Republic

This piece of legislation has 24 articles, organised around 7 chapters, with the objective to “lay down the legal framework and the procedures for implementing and securing these transactions, the offences, penalties and means of proof in this regard” (article 1).

Some preliminary observations can be made: Firstly, this law does not aim at replacing the monetary law but tries to organise a cohabitation between cryptocurrencies and Central African CFA Franc (FCFA), which is  the official legal tender used in the Central African Economic and Monetary Community (CEMAC) area, according to article 6 of the Convention governing the Central African Monetary Union. In this regard, the exchange rate between the former and the latter is freely determined by the market (art 5). The Law recognises also the ‘automatic and instantaneous convertibility’ of cryptocurrencies into the currency used in the Central African Republic (art 11). In the same vein, the reference currency used for accounting purposes is either the cryptocurrency or the FCFA (art 9).

The second observation is that this law also contains many provisions which ‘promotes’ the use of cryptocurrencies: They can be used for ‘all electronic transactions’ in the country (art 6) and all monetary obligations denominated in FCFA, existing before the law n°22.004, can be paid in cryptocurrency (art 22). As far as taxation is concerned, cryptocurrency exchanges are not subject to tax (art 8), but the profit made by the trader is (art 16). Additionally, tax contributions can be paid in cryptocurrencies (art 7).

Thirdly, at the governance level, a National Electronic Transaction Regulatory Agency is created (article 13) and is responsible for controlling and managing all public automatic teller machines (ATM) installed by the State on the national territory (article 14). In addition, a cybersecurity law, and a law on the protection of personal data will be adopted as well as the creation of related bodies to ensure the protection of user data and the security of infrastructure related to transactions (article 18). The breach of this law is subject to financial and criminal sanction (article 19).

However, this law does not address concerns about the environmental and climate impact of cryptocurrencies, the mining of which requires a certain amount of energy and has a carbon footprint. This is concerning given that the carbon dioxide (CO₂) is the most abundant greenhouse gas and is directly linked to the average global temperature on Earth and to climate change. It should be recalled that the CAR is party to the 2015 Paris Agreement, which recognises the need for an effective and progressive response to the urgent threat of climate change.

Additionally, one might wonder why CAR is adopting this law at a time where it faces violent conflicts  and has reached an alarming state of finances. It has been argued that cryptocurrencies are a solution to circumvent the international sanctions and pay Russia for its assistance to the Central African government (see here, here and here). The embargo, imposed on CAR since 2013, has complicated financial transactions with this country. This is particularly the case regarding transactions with Russia, which is also facing international sanctions. With cryptocurrency, however, these financial operations can be done directly and without an intermediary. This could explain the attraction of a country under embargo, the CAR, to this kind of currency, which is also seen as an attempt to undermine the French-backed CFA franc and close ties with Russia. Only time will tell whether this is true. In the meantime, it can be noted that the adoption of such legislation has certain advantages, as some cryptocurrencies are easy to access and cheap. According to CAR president, Faustin-Archange Touadéra, they have the potential to transform the country and bring it prosperity. However, they come with many risks and costs that may ultimately outweigh the potential benefits. As the IMF reminds us, these cryptocurrencies can be associated with substantial risks to financial stability and integrity, consumer protection and even the environment.

2 The obligation to accept cryptocurrencies as a form of payment

Article 10 of the Law n°22.004 requires any economic agent “to accept cryptocurrencies as a form of payment when offered for the purchase or sale of a good or service’’. This provision is identical to Article 7 of El Salvador bitcoin law of 2021 which has triggered discussions and debates as to whether businesses must accept cryptocurrencies as legal tender. After protests and contestations, the president of El Salvador declared that businesses were not ‘obliged’ to accept bitcoin as payment. The situation is more complicated in the Central Africa case because the country is a member of a monetary Union (see Section 4).

A legal tender can have different means of payment and there may be a preference, depending on the economic sector, for a specific means of payment. With the omnipresence of the informal sector in most African economies, including the Central African Republic, traders and retailers favor cash transactions. This observation was also made by the Council of Ministers of the Central African Monetary Union, which noted the distrust of the public vis-à-vis non-cash means of payment, in the Central African area, and the resulting inconveniences for all the economic partners concerned (see Preamble of Regulation No. 03/16-CEMAC-UMAC-CM relating to payment systems, means and incidents).

In addition, the obligation of article 10 goes against Regulation No. 03/16-CEMAC-UMAC-CM relating to payment systems, means and incidents which defines and lists the means of payment available in the Central African area. These include checks, bills of exchange, promissory notes, transfers, direct debits, payment cards and electronic money (article 1).

Furthermore, the requirement to accept cryptocurrencies as legal tender is likely to lead to economic insecurity for merchants. For example, bitcoin has lost 25% of its value in June 2022. If this cryptocurrency were used, merchants would have lost a quarter of their business in a few days. This extreme volatility of cryptocurrency prices is a matter of concern, and one would not be surprised if the government lifts the obligation to accept cryptocurrencies as was the case in El Salvador where a recent study has showed that more than 90% of surveyed people are reluctant to be paid in bitcoin.

3 Is the infrastructure in place for the use of cryptocurrencies?

Cryptocurrencies require a certain ecosystem for their operation: does this country possess the required infrastructure? In the Central African Republic, only 15% of the population have access to electricity and only 10% have access to the internet. Knowing that cryptocurrency activities require energy, it is uncertain how their use will work with such a limited access to energy. It is similarly uncertain if CAR has the infrastructure for transactions, in a country where only a third of the population possesses mobile phones. In comparison, El Salvador installed teller machines for the conversion of cryptocurrencies in US Dollars. In the Central African context, what are the accompanying measures to ensure the smooth application of this law?

It was after the passage of the law that a cryptocurrency infrastructure company, named Mara, was appointed to advise the president of the Central African Republic and find solutions to the infrastructural challenges imposed by the adoption of cryptocurrency as a payment instrument. This company was able to raise $23 million to support the implementation of cryptocurrency tools on the African continent.

The lack of internet infrastructure was noticed by the African Development Bank Group, according to which “CAR remains the last landlocked country on the Continent not to have fiber-optic land links with its immediate neighbours. Moreover, the extremely low internet and mobile telephony rate is compounded by the virtual non-existence of high-speed wired infrastructure”. To address this lack, the government signed an agreement with Cameroon to install fiber by end of 2023 and ensure universal access to the internet. The World Bank also approved a project to improve public  digital migration in the country.

Still about infrastructural challenges, can cryptocurrencies transactions co-exist with mobile money transactions? Mobile money is not a currency but works like a credit for a legal tender. It allows users to buy credit – either in cash or with an online banking account – which is transferred to their mobile phone account. They then send a code to the recipient’s account, which can be redeemed for cash. Mobile money services are usually operated by telecommunications companies and not banks. In CAR, mobile money services are provided by Orange (Orange Money) and Telecel (Pâtâ Bâni). For some people, cryptocurrencies transactions can coexist with mobile money transactions given that the latter is mainly used for domestic exchanges while the former focuses on cross-border transactions.

All these challenges should have, in my opinion, been addressed before the adoption of this piece of legislation and not after. Addressing them and ensuring that the required infrastructure is in place could foster financial inclusion and avoid a situation where only a small elite, made up of affluent and digitally literate urban citizens, would benefit from the positive impact of cryptocurrencies.

4 Is this Law a threat to regional integration?

In a monetary Union, the conduct of monetary policy is not the prerogative of national authorities but rather the exclusive competence of the Union, through a monetary issuing authority. Within CEMAC, which CAR is a member, monetary creation is entrusted to the Bank of Central African States (BEAC). According to article 21 of Convention governing the Central African Monetary Union (CAMU Convention), “The exclusive privilege of monetary issue on the territory of each member state of the monetary union is entrusted to the BEAC”. And the member states undertake to provide their assistance to ensure full compliance with the provisions of the Convention (article 5 of the CAMU Convention) and refrain from any measure likely to hinder its application and implementation (Article 8 CAMU Convention).

The CAMU Convention has also instituted some organs, among which the Central Africa Banking Commission (COBAF) and the Central African Financial Market Supervisory Commission (COSUMAF) (article 10 CAMU Convention). The former is responsible for ensuring compliance by credit institutions with the legislative and regulatory provisions and for sanctioning the shortcomings observed (art 1 of the Convention creating a Central African banking commission). How did they react to the passage of the law?

Less than one month after the adoption of the piece of legislation, the COBAF met in an extraordinary session and decided a general ban on cryptocurrencies and crypto assets by all the credit institutions of the Community (see COBAC D-2022/071/ Relative à la detention, l’utilisation, l’échange et la conversion des cryptomonnaies ou crypto-actifs par les établissements assujettis à la COBAC du 6 mai 2022). According to COBAF, it is necessary to take precautionary measures to guarantee financial stability and preserve the deposits of the clientele in the CEMAC. It also justified its decision by the risks of the cryptocurrencies: the market risks given the extreme volatility of cryptocurrency prices; the operational risk; the liquidity or currency conversion risk; the legal risk linked to the extraterritoriality of service providers; the risk of money laundering and terrorist financing and the risk of tax evasion and capital flight. More specifically, the COBAC decision prohibits the subscription or holding of cryptocurrencies of any kind whatsoever for own account or for the account of third parties (article 1), the exchange or conversion, the settlement or hedging in currency or in CFA francs of transactions relating to cryptocurrencies or related to these (article 2), the prohibition of Bitcoin or any other cryptocurrency as a means of valuing the assets, liabilities or off-balance sheet of subject institutions (article 3). They are also required to report crypto activities to the Secretary General of COBAC and to the BEAC (article 5).

However, this decision has a limited scope as it is addressed to institutions subject to COBAC, which are credit institutions, microfinance institutions and payment institutions, governed by COBAC. It does not bind natural or legal persons in the CEMAC area, who can, for example, continue to hold and use cryptocurrencies via the various dedicated platforms located for the most part outside CEMAC. These persons will, however, need to convert their cryptocurrencies into a currency issued by a central bank and admitted to CEMAC before subsequently converting into CFA francs. Therefore, it is not a ‘regulation’ of cryptocurrencies by CEMAC but rather a ‘decision’ of a body that applies to the addressees it designates: A decision is a measure of individual scope and binding in all its elements but only for the addressees it designates whereas a regulation is a measure of general scope binding in all of its elements and applicable in all Member States (article 41 CEMAC Convention).

It should be noted that, since 2020, the Central African Financial Market Supervisory Commission (COSUMAF) has been examining the issue of cryptocurrencies and trying to establish a legal and operational framework for the supervision of cryptocurrencies activities. Until this is done, the Commission has prohibited all activities related to crypto-assets in general (see here and here), except for activities in relation to public offering transactions. Quid of the BEAC? It has still not officially examined this issue, which is a bit surprising, given that issues relating to the currency fall primarily within its area of ​​competence.

5 Never let a good crisis go to waste

This famous Churchill quote encourages looking for a silver lining during a crisis. If the adoption of Law n°22.004 did not lead to a crisis, it created a difficult situation, at least at the regional level where the question of the exclusion of the CAR from the CEMAC community was raised. This difficult situation may also contain opportunities for African countries to explore, especially to address infrastructural challenges and create a regulatory framework conducive to new technologies and innovative solutions: Africa is the fastest-growing cryptocurrency market (see here and here). However, is the continent ready for the digital shift? If not, how can we make Africa fit for the digital age and build a future-ready economy that works for the African people?

This entails creating a continental framework for cryptocurrency which is currently missing. At the regional level, notably in CEMAC and WAEMU, the situation is somewhat chiaroscuro: In both regions, the financial market regulatory authorities, Central African Financial Market Supervisory Commission (COSUMAF) and West African Monetary Union’s Regional Council on Investments and Financial Markets (CREPMF) require cryptocurrencies companies to obtain prior authorisation before any exercise of activities relating to crypto assets insofar as the proposed offers have a link with public offering transactions. These companies are therefore subject to the public call for savings regime, according to article 20 of COSUMAF General Regulation and article 1 of CREPMF Revised instruction n°36/2009.This can be seen as an ‘indirect’ regulation of crypto activities (see here).

The continental approach is in line with the goals of the African Continental Free Trade Area (AfCFTA), one of them being the promotion of ‘research and technological advancement in the field of services to accelerate economic and social development’ (Article 3 al 2 i). Also, a Protocol on Digital Trade will be drafted in the third phase of AfCFTA negotiations. At the comparative level, the common approach is also adopted by the EU, where the European Commission has proposed a Regulation on Markets in Crypto-assets and amending Directive (EU) 2019/1937. A provisional agreement was recently reached on this proposal, which will be finally approved soon.

Conclusion

According to Obed Namsio, Minister of State and Cabinet director of Central African Presidency, ‘‘In a progressive, forward-looking vision, our nation must be able to pursue its destiny and join the ranks of those who not only understand the importance of blockchain technology but are also rushing to legislate it ’’ (author translation). This statement is a true reflection of what happened: the CAR rushed to legislate cryptocurrencies without creating the ecosystem they should operate in and ensuring the country is ready for such a shift to cryptocurrencies. Therefore, many challenges still need to be addressed not only at the national level but also at the regional level.

On 3 July 2022, Central African authorities launched their national crypto initiative, called   Sango project, which consists of a cryptocurrency (the Sango coin) and a crypto island. The success of this ambitious project, which aims at positioning the country as an emerging crypto hub, will depend on its ability to meet the challenges discussed above.