Digital Money Becomes a New Choice for Third World Countries

For developed countries, digital money represents innovative exploration in the field of technology, but in the eyes of third-world countries, it is more like a financial tool that preserves value and is difficult to be deprived of. Many countries even hope to use it to break financial barriers and open up new paths for economic development.

When it comes to third world countries, people often associate them with poverty, hunger, and violence. Modern internet products like Digital Money seem to be out of place, but they are now providing new ideas to solve the economic difficulties in these countries.

Since El Salvador took the lead in making Bitcoin legal tender in June 2021, several third world countries, including Cuba and the Central African Republic, have followed suit and initiated the process of legalizing digital money. The following is an overview of the current situation in some third world countries that have adopted digital money as their fiat currency.

El Salvador

El Salvador is often regarded as one of the most dangerous countries in the world, characterized by high crime rates, high murder rates, and gang violence. Before 2021, the US dollar was the only legal tender in the country. After the passage of the Bitcoin law by the El Salvador Congress in 2021, the country became the first in the world to recognize Bitcoin as legal tender.

This radical move has sparked widespread criticism. Some believe that this "top-down" approach may be more beneficial for the wealthy. The International Monetary Fund (IMF) even called for El Salvador to repeal the bill, stating that it may refuse to provide financial assistance as a result.

By the end of 2021, El Salvador's debt accounted for 85% of its GDP, and the economic situation was not optimistic. However, in the first year after adopting Bitcoin, the country's GDP grew by 10.3%, mainly due to Bitcoin's role in revitalizing international tourism.

El Salvador has also proposed a series of plans, including the construction of a Bitcoin beach and using geothermal energy from volcanoes for mining. Although the internet penetration rate is only 45%, the public's support for the president remains high.

In February this year, the IMF stated after its annual visit that the risks of Bitcoin "have not yet materialized" in El Salvador, but still warned the government to reconsider plans to expand its exposure to Bitcoin risks.

Cuba

In June 2021, Cuba became the second country to adopt Bitcoin as legal tender, following El Salvador. This decision was mainly made to address U.S. multinational remittance sanctions rather than simply embracing new technology.

Due to the impact of U.S. sanctions, Cuba needs to circumvent the dollar framework. Coupled with rampant government bureaucracy and high economic inflation, the public's trust in the government and the national currency, the peso, has declined. With the proliferation of mobile internet in Cuba, many people have started turning to Bitcoin.

In September 2021, the Central Bank of Cuba announced the enactment of a law recognizing Bitcoin and other cryptocurrencies, making cryptocurrencies a legal payment method. It is reported that over 100,000 Cubans are using cryptocurrencies to cope with U.S. sanctions.

In the face of a 60-year-long economic blockade by the United States, Cuba is seeking economic solutions. Reports suggest that Russia and Cuba, both under sanctions, are exploring alternatives for cross-border payments, and cryptocurrency offers Cuba a way to circumvent financial restrictions.

Central African Republic

In April 2022, the National Assembly of the Central African Republic unanimously passed a bill to adopt Bitcoin as legal tender, becoming the first country in Africa to take this step. Subsequently, the country launched Sango Coin, becoming the first African nation to create a national cryptocurrency.

As a small country with a population of just over 5 million, the Central African Republic is considered one of the poorest countries in the world. Having been a French colony, the country has long used the Central African CFA franc. With France adopting the euro, the value of the Central African CFA franc has declined, prompting the government to turn its attention to cryptocurrencies.

However, the Central African Republic faces severe challenges. The country's internet coverage rate is only 11%, with only 14% of the population having access to electricity, and less than half of the people own a mobile phone. Despite this, the government insists on incorporating cryptocurrency into the national economy and launched the Sango platform based on Bitcoin sidechains in July 2022.

Currently, the popularity of Bitcoin still faces challenges in the Central African Republic. The public is still accustomed to using traditional currency, and the network infrastructure and smartphone penetration rate need to be improved urgently.

Venezuela

In February 2018, Venezuela issued the world's first state-issued legal Digital Money - the Petro. The Petro is directly linked to the country's oil, natural gas, gold, and diamond reserves, with each "Petro" equivalent to 1 barrel of oil, and a total issuance of 100 million coins.

The Venezuelan government actively promotes the Petro coin, allowing citizens to use it for purchasing houses, opening Petro coin counters in banks, and distributing pensions or relief funds through the Petro coin. The government also plans to promote the use of the Petro coin in international payments and daily life.

In 2019, after Venezuela severed ties with the United States, the Petro became an important tool to evade U.S. sanctions.

Pacific Island Nation Tonga

In January 2022, former Tongan MP Lord Fusitu'a proposed a plan to adopt Bitcoin as legal tender. He stated that this move could allow over 100,000 Tongans to join the Bitcoin network, while the country's total population is only 120,000.

Fusitu'a believes that households in developing countries lose a significant amount of income when remitting. About 40% of Tonga's national economy relies on remittances from overseas workers. Tonga may adopt Bitcoin as legal tender in the second quarter of 2023 and start Bitcoin mining in the third quarter.

Summary

Under the global dominance of the US dollar, the currencies of small countries often become vassals. Countries trapped in financial crises view digital money as a way out. For major powers, digital money is more of an investment asset, while for impoverished third-world countries, it is truly circulating currency and one of the few options to break free from economic sanctions.

In the future, more third world countries may move towards the fiatization of Digital Money, such as Argentina, which is facing high inflation, and Paraguay, the smallest country in Latin America. Digital Money provides these countries with new ideas for seeking an independent financial currency system.