Digital Money Becomes a New Financial Choice for Third World Countries

For developed countries, digital money represents the forefront of technological innovation, but for third world countries, it is more like a financial tool that preserves value and is hard to confiscate. Many countries even hope to break financial barriers through digital money, opening new avenues for economic development.

Third world countries are often associated with words like poverty, hunger, and turmoil. Modern internet products like Digital Money seem to be out of place in these countries, but today they provide new ideas for solving financial difficulties.

Since El Salvador became the first country to adopt Bitcoin as legal tender in June 2021, several developing countries, including Cuba and the Central African Republic, have embarked on the path of legalizing Digital Money. The following is an overview of several developing countries that have adopted Digital Money as legal tender.

El Salvador

El Salvador was once known for its high crime rates and violence issues. Before 2021, the US dollar was the only legal tender in the country. After the Bitcoin Law was passed by the El Salvador Congress in 2021, the country became the first in the world to adopt Bitcoin as legal tender.

This radical move has drawn much criticism. Some believe it is a wrong example because the approach is too "top-down". The International Monetary Fund (IMF) has even called for El Salvador to abolish the Bitcoin law and stated that it may refuse to provide financial assistance as a result.

However, in the first year after adopting Bitcoin, El Salvador's GDP grew by 10.3%, mainly due to Bitcoin's promotion of the country's recovery in international tourism. At the same time, El Salvador also proposed a series of plans such as building Bitcoin beaches and using volcanic geothermal energy for mining.

Despite the internet penetration rate being only 45%, public support for the president remains high. Data from February this year shows that 94% of Salvadorans still intend to continue supporting the current president.

Since the beginning of this year, El Salvador has started to regulate digital securities and issued Bitcoin-backed "Volcano Bonds." Although the total value of its held Bitcoin has incurred losses, the authorities believe that this proportion is negligible compared to the government's financial budget.

The IMF pointed out after its annual visit in February this year that the risks of Bitcoin "have not materialized" in El Salvador, but still reminded 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 more driven by political factors rather than an embrace of advanced technology.

Due to sanctions from the United States, Cuba needs to bypass the dollar system to evade financial restrictions. Coupled with rampant government bureaucracy and high inflation, public trust in the government and the national currency, the peso, has declined. With the proliferation of mobile internet in Cuba, many people have begun to turn to using Bitcoin.

In September 2021, the bill recognizing Bitcoin and other cryptocurrencies issued by the Central Bank of Cuba officially came into effect, making cryptocurrencies a legal method of payment. A report a year later showed that over 100,000 Cubans are using Bitcoin and other cryptocurrencies to cope with U.S. sanctions due to the inability to use internationally accepted payment tools.

Faced with a continuous 60-year economic blockade from the United States, Cuba has had to seek its own way out. Reports suggest that Russia and Cuba, both under sanctions, are exploring alternative solutions for cross-border payments, and cryptocurrency provides Cuba with an option 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 use Bitcoin as its official currency. Subsequently, the country launched Sango Coin, becoming the first African nation to create a national cryptocurrency.

As a small African country with a population of just over 5 million, the Central African Republic faces a turbulent political situation and severe poverty issues. Having been a French colony in its early days, the country has used the Central African CFA franc as its legal tender. However, as France transitioned to the euro, the value of the Central African CFA franc began to decline, prompting the government to turn its attention to cryptocurrency.

However, the internet coverage rate in the Central African Republic is only 11%, with only about 14% of the population having access to electricity, and less than half of the people owning a mobile phone. These real conditions pose significant challenges to the adoption of cryptocurrency.

Nevertheless, the Central African Republic insists on incorporating cryptocurrency into its national economy. In July 2022, the country launched the Sango platform based on a Bitcoin sidechain and started the presale of Sango tokens.

Venezuela

In February 2018, Venezuela officially pre-sold the oil-backed coin issued by the government, becoming the world's first state-issued legal Digital Money in history. The oil-backed coin is directly linked to the country's reserves of oil, natural gas, gold, and diamonds, with each "oil-backed coin" equivalent to 1 barrel of oil, and a total issuance of 100 million coins.

The Venezuelan government actively promotes the Petro, applying it in various fields such as real estate transactions and pension distributions. In 2019, after severing ties with the United States, the Petro became an important tool for Venezuelans to evade US sanctions and transfer funds.

Pacific Island Nation Tonga

In January 2022, former Tongian parliament member 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 Tonga's total population is only 120,000.

Fusitu'a emphasized that families in developing countries lose a significant amount of income when remitting money. Approximately 40% of Tonga's national economy relies on remittances from overseas workers, making digital money crucial to the national economy.

It is reported that Tonga may adopt Bitcoin as legal tender in the second quarter of 2023 and start Bitcoin mining in the third quarter.

Conclusion

Under the global dominance of the US dollar, the currencies of small countries often become vassals. For countries caught in financial crises, Digital Money is seen as a way out. The "Original Sin" theory of small country currencies proposed by economist McKinnon points out that it is often difficult for small countries to successfully confront the US dollar on their own.

For major powers, Digital Money is more of an investment asset, while for impoverished developing countries, it is truly a circulating currency and one of the few options to break free from economic sanctions. In the future, more developing countries may adopt Digital Money as legal tender, such as Argentina, which faces high inflation, and Paraguay, the smallest country in Latin America. Digital Money offers these countries new ideas for establishing an independent financial and currency system.