The most recent coup in Niger brings to a head a lot of the challenges that have been happening in west Africa, in Francophone Africa in particular. The French and US involvement in this region was purportedly to help economic development and fight corruption within Western Africa. As the Niger Coup edges towards a hot war, in the West we should consider what our role is in the region and whether we are justified in getting involved militarily. Could Bitcoin do what decades of American and French involvement have failed to do?
Many point to France’s involvement in the CFA (African Financial Community) as a method of controlling their former colonies through their control of the exchange rate. They have been able to devalue the CFA franc against the French Franc, or now the Euro, in a way to increase their purchasing power for raw materials from Africa and then selling back finished goods at an elevated price. This has meant the purchasing power of some of the poorest countries in the world is being diluted by France using monetary policy.
Many would suggest that this has
The Central African Republic was the second country in the world to accept Bitcoin as legal tender. A year later the nation backtracked for a number of reasons including lack of internet access in the country.
The Central African Franc has been a dominant currency since the end of French colonial rule and replaces an earlier French colonial currency, known as the Franc of the French Colonies (F.CFA for short). Some have argued that this currency has facilitated better trade between West African countries, oferring increased stability compared to other African currencies. At the same time, many of these countries have not progressed past being just exporters of raw materials. Being dependent on exporting raw materials has also meant they are particularly subject to the effects of price shocks and what’s going on in other parts of the global economy, i.e. an oil exporting country loses export income when the price of oil decreases.
Observers have increasingly looked at the CFA Franc as a mechanism for wealth transfer from these impoverished African nations to France. Even the prime minister of Italy has suggested that France’s exploitation of raw materials from these countries has been a driver of economic migrants making dangerous trips to Europe for a better life.
Any attempts to move to something like Bitcoin has been tamped down, even as adoption has increased in many African Nations in general.
Fighting Corruption with Bitcoin
There have been numerous Bitcoin heists over the years. There have been high profile embezzlement of Cryptocurrency, like the Mt Gox Hack or the FTX Embezzlement Scandal. These problems grab headlines and create a lot of mystery around what happened with these situations. The nature of decentralized networks like Bitcoin has made it more challenging to offer safeguards similar to traditional finance. Bitcoin notoriously got its start with Silk Road, an online marketplace on the Dark Web where people could buy anything they wanted. Transactions usually occurred using Bitcoin and people could buy innocuous items like on ebay all the way to drugs and other illegal items.
A lot of fear has been incited around the use of Bitcoin because of that. But the outcome of the Silk Road raids should give us insight into how Bitcoin is not worse, but probably better than the current financial system when it comes to investigation of its use in crime. The IRS and other law enforcement agencies have used the public nature of Bitcoin’s blockchain to their benefit. The blockchain records the movement of Bitcoin from wallet to wallet. While all the wallet addresses are anonymous, once a wallet address can be tied to an individual, it’s very easy to search the ledger for every transaction linked to that address.
It’s a tale as old as time where politicians will embezzle money from the public treasury to enrich themselves. Many Governments have put in place safeguards to make sure this hasn’t happened, but too often in Africa these safeguards are either not there or there have been easy ways around them. Many politicians will then move funds meant for things like roads, electricity, and clean water and have them go to secret bank accounts offshore. This is often done in smaller amounts at a time to avoid suspicion.
There are other solutions that have been developed over the years, like Multi-Sig which requires the approval of multiple users to sign off on the use of funds. This could allow Comptrollers and Public oversight boards to be directly notified before any funds are being spent.
Bitcoin could be a major weapon against corruption. If a country uses Bitcoin as their official currency for public finances, there’s a public ledger tracking the spending from the official government Wallet. This ledger is accessible to the Press, political opposition, and to every interested citizen for that matter. This can allow real time tracking of embezzlement and corruption within Governments.
Bitcoin could Also be a double edged sword. We’ve seen in the US that once a person is tied to a wallet, law enforcement are able to track the amount that’s in the wallet as well as the transactions using the public ledger.
Unscrupulous public officials could use this knowledge of their citizens Bitcoin Balance to target individuals or groups for bribery or extortion.
Fair Free Trade
One of the challenges that has faced many post colonial nations, but West Africa in particular, has been a failure to capitalize on their natural resources. West Africa has gold, oil, diamonds, and uranium among other resources, but haven’t been able to translate this into long-term sustainable growth. Some of this is domestic problems with corruption that hamper development. Heavy regulations make it difficult to conduct business due to licensing requirements;these requirements are often a thinly veiled attempt at securing bribes.
But this isn’t the only mechanism at work here. One major problem within West Africa in particular has been the French imposition of the CFA Franc. The French have been regularly devaluing this currency so they have a trade advantage. As the CFA franc is devalued against the euro, the same amount of euros can purchase more African goods. When these nations look to buy finished goods from France, the longer they hold on to their CFA francs, the less they can buy from France as the currency loses value against the euro.
For many decades after independence these nations were required to keep their cash reserves in the French Central Bank. This has been a boon to France, but benefits have been marginal for these nations. While there might be some reasons to do this, including speeding up international settlement and fighting corruption, for the most part this has been a loss of power in making decisions or developing local banking infrastructure. This has also meant that the French central bank has been able to charge these nations transaction fees, further leading to a loss of wealth.
Bitcoin fixes this. Independent of Central Banks, Bitcoin allows international transactions easily without an intermediary. With relatively low transaction costs as well, this would allow West African nations to engage in commerce with any country in the world without having to go through the intermediary of the French.
West African countries would be able to buy machinery as well as finished manufactured goods from other countries directly without having to go through multiple currency exchanges. This could also make it easier to bring in partially finished goods or other items that would allow them to build their own local infrastructure and industry. This could be in the form of used or new mining equipment, oil refining equipment, saw mills to harvest and process timber, glass making machinery, etc. This becomes much cheaper without a large percentage being taken off the top per transaction.
Banking for the Unbanked
One great advantage for individuals is that Bitcoin is open to anyone. Many people within Africa and the developing world tend to have challenges with banking that we often don’t think about in the first world.
The first is access to identification. When you bring your kid down to the local bank to open their first savings account they will ask you to show their social security card and birth certificate in the US. Many people and the developing world don’t have either. They are often born at home with a local midwife and it can be expensive or not worthwhile to register the birth with local officials. This means that millions around the world don’t have access to banking as we know it.
Many in Africa have been able to participate in banking to a certain extent through their mobile phones already. There has been a wide proliferation and adoption of both smartphones and flip phones throughout Africa. In order to buy data or minutes people will buy SIM cards with cash and put a new SIM card in their phone. Many people will buy a new SIM card every week. This is very different from Many places in the west where we go through background checks and then pay our bill at the end of the month.
Mobile phones have given
people limited access to Mobile payments, but it’s still somewhat limited and is generally in local currency with high transaction costs. Bitcoin allows people to use their money on their terms.
This has been more significant in times of chaos. As some nations have faced sanctions, individuals can use Bitcoin as a way to sidestep sanctions. Banks are often uncomfortable transferring funds to and from uncertain areas. Bitcoin has and could continue to give people access to goods and machines they need for their business to grow.
Challenges with Bitcoin
While Bitcoin would work great as a drop-in replacement to bad currencies, that doesn’t mean this is a perfect solution.
While there are some solutions to using bitcoin without access to the internet, most Bitcoin transactions require access to the blockchain and the internet to verify the transaction. This won’t always be the case, and many bitcoin users and advocates have been working on systems which will allow people to use Bitcoin without having direct access to the internet.
Volatility within bitcoin is also something that makes it challenging to use day-to-day as a currency. The wild price fluctuations might make it better as a method of international settlement, but might make it difficult for day to day use.
Another not very pretty element to currency markets is that Bitcoin doesn’t have an army or global bureaucracy. This is something that many people like about Bitcoin, but conflict with international organizations and nations like the International Monetary Fund, France, and the US have bristled at the idea of having a new global currency that isn’t directly controlled by them.
There also might also be better alternatives for West African countries. They might be better off using a basket of goods as a guarantee for their currency. Many West African countries have enough gold to allow them to issue gold backed notes, including one which uses a blockchain to verify the deposit of gold and track its transfer. Some economists have suggested using multiple commodities in order to avoid the volatility of any one commodity affecting the value of the currency. These commodity based currencies might be more valued internationally with blockchain giving more credibility to these currencies.
The Central African Republic has been trying to issue their own Cryptocurrency, and an effort a few years ago to involve all of West Africa, including French speaking West Africa and English Speaking Nigeria, has fizzled out as people viewed it as slowly became co-opted by France. Could Bitcoin succeed where those efforts failed?
This is a guest post by Phil Vecchio. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.