On April 22, 2022, the Parliament of the Central African Republic (CAR) adopted a groundbreaking piece of legislation, Law n°22.004, which governs the use of crypto assets in the country. This historic move marked the second instance globally and the first in Africa where a country officially recognized cryptocurrencies as legal tender.
While the adoption of crypto assets as legal tender in the CAR was met with praise by some, it also faced significant criticism from various quarters, including political opposition members, the governor of the Bank of Central African States, the World Bank, and the International Monetary Fund (IMF).
This article aims to comprehensively examine the regulation of crypto assets in the Central African Republic, exploring the key features of the law and addressing the challenges and implications of this groundbreaking decision.
The Law n°22.004 Governing Crypto Assets
The Law n°22.004 consists of 24 articles, organized into 7 chapters, with the primary objective of establishing the legal framework and procedures for secure crypto asset transactions, defining offenses, penalties, and means of proof. Several key provisions are outlined in this legislation:
- Coexistence with Central African CFA Franc (FCFA): The law does not seek to replace the official currency, the Central African CFA Franc (FCFA), which is used in the Central African Economic and Monetary Community (CEMAC) area. It ensures a cohabitation between crypto assets and FCFA. The exchange rate between them is freely determined by the market.
- Use in Electronic Transactions: Crypto assets can be used for “all electronic transactions” within the country.
- Monetary Obligations: All monetary obligations previously denominated in FCFA can be paid in cryptocurrency.
- Taxation: Crypto exchanges themselves are not subject to taxation, but the profits derived from trading cryptocurrencies are taxable. Tax contributions can be paid in crypto assets.
- Governance: The law establishes a National Electronic Transaction Regulatory Agency responsible for overseeing public ATMs and a cybersecurity law. It also addresses issues related to data protection and infrastructure security.
However, the legislation does not address environmental concerns related to crypto assets mining and its energy consumption.
Challenges at the National Level
The adoption of cryptocurrencies as legal tender poses several challenges at the national level:
- Means of Payment: Crypto assets might not be universally accepted in a largely informal economy. Many individuals, traders, and retailers in the CAR prefer cash transactions, which may hinder the adoption of crypto assets.
- Economic Insecurity: The high volatility of crypto asset prices raises concerns for merchants. For example, Bitcoin experienced a 25% loss in value in June 2022, potentially causing economic insecurity for those accepting crypto asset payments.
Implications on Regional Integration
The CAR is a member of the Central African Economic and Monetary Community (CEMAC), a regional economic union with a shared monetary policy. The law’s provision obliging the acceptance of cryptocurrencies as legal tender could potentially undermine the harmonized regional monetary policy and lead to tensions within CEMAC.
Central Africa’s regional banking regulator sent out a reminder on May 2022about its ban on cryptocurrencies, weeks after the Central African Republic, a member state, made bitcoin legal tender. The Banking Commission of Central Africa (COBAC), which regulates the banking sector in the six-nation Economic and Monetary Community of Central Africa (CEMAC), said the prohibition was meant to ensure financial stability.
Opportunities for the African Continental Free Trade Area (AfCFTA)
The Central African Republic’s adoption of crypto assets may present opportunities within the framework of the African Continental Free Trade Area (AfCFTA). As AfCFTA aims to facilitate trade and economic integration across the African continent, the use of cryptocurrencies might simplify cross-border transactions and foster trade among AfCFTA member states.
Conclusion
The adoption of Law n°22.004 in the Central African Republic represents a significant milestone in the world of cryptocurrencies. While it has been met with both praise and criticism, the Central African Republic is making a bold move towards incorporating crypto assets into its financial system.
The law addresses several aspects of crypto asset usage, from legal coexistence with the official currency to governance and taxation. However, it remains to be seen how the CAR will navigate the challenges posed by cryptocurrency adoption, particularly within the context of CEMAC, and how it will leverage this decision for regional and continental economic integration.
