Is Digital Money the Economic Savior of Third World Countries?

For developed countries, digital money is more of an innovative attempt in the technology field. However, for many third world countries, digital money is becoming an important tool to maintain purchasing power and break through financial barriers, and is even seen as a new driving force for economic development.

Since El Salvador first declared Bitcoin as legal tender in June 2021, and with Cuba and the Central African Republic following suit, an increasing number of developing countries are beginning to embrace Digital Money. Below is an analysis of the current situation of several typical cases:

El Salvador: The Pioneer of Bitcoin as Legal Tender

El Salvador has long been regarded as one of the most dangerous countries in the world, with high crime and murder rates. In 2021, the government boldly promoted the legalization of Bitcoin, becoming the first country in the world to adopt Bitcoin as legal tender. Although this move has drawn considerable criticism, it has also brought some positive changes to the country.

At the end of 2021, El Salvador's debt accounted for 85% of its GDP, raising concerns about its economic outlook. However, in the first year after the official adoption of Bitcoin as legal tender, the country's GDP grew by 10.3%, mainly due to the recovery of the international tourism industry. The government also proposed a series of Bitcoin-related plans, such as the construction of Bitcoin Beach and using geothermal energy for mining.

Despite the internet penetration rate being only 45%, the public support for President Bukele remains high. A survey conducted in February showed that 94% of Salvadorans still intend to support Bukele's re-election in the next election.

Since the beginning of this year, El Salvador has begun to regulate digital securities and plans to issue Bitcoin-backed "Volcano Bonds". Although the Bitcoin it holds is currently showing a paper loss, the officials believe that the impact on the government's budget is limited, and they place more emphasis on the long-term prospects of Bitcoin.

The International Monetary Fund ( IMF ) has acknowledged that the risks of Bitcoin "have not yet manifested in El Salvador," but still expresses concerns about its legal risks and financial vulnerabilities, suggesting that the government reconsider its plans to expand Bitcoin exposure.

Cuba: Financial Tools to Combat Sanctions

In June 2021, Cuba announced the legalization of Bitcoin, following El Salvador. Unlike El Salvador, Cuba's move was primarily aimed at addressing economic sanctions from the United States, particularly regarding cross-border remittances.

Long-term U.S. embargo sanctions, coupled with government bureaucracy and high inflation, have led to a decline in public confidence in the local currency, the peso. As mobile internet becomes widespread in Cuba, many people have begun to turn to using Bitcoin.

In September 2021, the Central Bank of Cuba officially recognized Bitcoin and other cryptocurrencies as legal means of payment. It has been reported that over 100,000 Cubans are currently using Bitcoin and other cryptocurrencies to circumvent U.S. sanctions. As they are unable to use international payment tools like PayPal, cryptocurrencies have provided a new source of funding for Cuba.

In the face of a 60-year-long economic blockade by the United States, Cuba is actively exploring economic solutions. Reports suggest that Cuba is researching alternative cross-border payment solutions with Russia, which is also under sanctions, and digital money has become an important option.

Central African Republic: Africa's First Bitcoin Legal Tender Country

In April 2022, the Central African Republic became the first country in Africa to make Bitcoin legal tender. As a small country with a population of just over 5 million, the Central African Republic not only adopted Bitcoin but also launched its national cryptocurrency, Sango Coin.

As a former French colony, the Central African Republic has long used the Central African franc. With France adopting the euro, the value of the Central African franc has continued to decline, prompting the government to turn its attention to cryptocurrencies.

However, the Central African Republic faces many real difficulties: the internet coverage rate is only 11%, only 14% of the population has access to electricity, and less than half of the people own a mobile phone. These factors make it difficult for Bitcoin to become popular in the short term.

Despite this, the government of the Central African Republic insists on advancing its cryptocurrency strategy. In July 2022, the country launched the Sango platform based on the Bitcoin sidechain and began the presale of Sango tokens.

Venezuela: The First Country to Issue Digital Money

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

The Venezuelan government actively promotes the use of the oil coin, including allowing its use for purchasing real estate, setting up dedicated counters in banks, and issuing pensions to retirees. The government also plans to convert utility bills and taxes to be paid in oil coins.

After Venezuela severed diplomatic ties with the United States in 2019, the Petro became an important tool for circumventing U.S. sanctions. However, the actual usage and market acceptance of the Petro remain unclear.

Pacific Island Nation Tonga: Brewing Bitcoin Plan

In January 2022, former Tonga MP Lord Fusitu'a proposed a plan to make Bitcoin a legal tender. He believes this could allow over 100,000 Tongans out of a total population of 120,000 to join the Bitcoin network.

About 40% of Tonga's national economy relies on remittances from overseas workers. Fusitu'a stated that adopting Bitcoin can reduce losses in the remittance intermediary process, which is crucial for 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 find themselves in a weak position. For many countries facing economic crises, Digital Money is becoming a new avenue. Although these attempts face numerous challenges, they also provide new ideas for countries seeking an independent financial system. In the future, more developing countries may follow suit, such as Argentina, which is experiencing high inflation, and Paraguay, a small country in Latin America. Digital Money is becoming an important tool for these countries to cope with economic difficulties.

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