Digital Money becomes a new option for third world countries to cope with financial difficulties

For developed countries, Digital Money is a grand idea in the field of technology, but for third-world countries, it is more often seen as a financial tool that maintains purchasing power and is difficult to be stripped away. Many countries even hope to eliminate financial barriers through it, providing new solutions for economic development.

When it comes to third world countries, people often associate them with poverty, hunger, and violence. Digital Money and modern internet products like Bitcoin seem to be at odds with these countries. However, Digital Money now offers new ideas to solve the inherent financial dilemmas faced by these nations.

Since El Salvador became the first country to adopt Bitcoin as legal tender in June 2021, followed by Cuba and the Central African Republic legalizing Bitcoin, more and more third-world countries are beginning to embark on the path of legalizing Digital Money. Below is an overview and summary of the current situation of those third-world countries that have adopted Digital Money as legal tender.

El Salvador: The World's First Bitcoin Legal Tender Country

El Salvador is often described as a country where "high crime rates, high murder rates, gangs, and violence" prevail, and it is considered one of the most dangerous countries in the world. Before 2021, the US dollar was the only legal tender in the country. In 2021, the El Salvadoran Congress officially passed the Bitcoin Law, making it the first country in the world to adopt Bitcoin as legal tender.

This radical move has sparked a lot of criticism. Some believe that this "top-down" approach is wrong and may benefit the rich more. The International Monetary Fund (IMF) has even called for El Salvador to abolish its Bitcoin law and suggested that it may refuse to provide financial assistance as a result.

Despite El Salvador's debt-to-GDP ratio reaching 85% by the end of 2021, its GDP grew by 10.3% in the first year after adopting Bitcoin, largely due to Bitcoin's role in boosting the recovery of international tourism.

El Salvador has also proposed a series of plans related to Bitcoin, including the construction of Bitcoin Beach, using volcanic geothermal energy for mining, and issuing Bitcoin bonds.

As a country with a large population living in poverty, the adoption of Bitcoin as legal tender seems extremely disadvantageous for those at the poverty line. However, a survey conducted in February this year showed that 94% of Salvadorans still plan to support the current president's continuation in office, indicating that the public has not given up on supporting the government due to the Bitcoin initiative.

Since the beginning of this year, El Salvador has started to regulate digital securities and issued Bitcoin-backed bonds, also known as volcano bonds. Although the total value of the Bitcoin held has incurred losses compared to the cost price, the authorities believe that this only accounts for a very small proportion of the government budget and can be sustained.

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

Cuba: New Means to Counter US Sanctions

In June 2021, Cuba became the second country to adopt Bitcoin as legal tender, following El Salvador. Unlike El Salvador, Cuba's move was primarily aimed at addressing U.S. multinational remittance sanctions, with political factors taking precedence.

Due to the impact of U.S. sanctions, Cuba needs to bypass the dollar framework to evade financial restrictions. At the same time, due to widespread government bureaucracy and high inflation, public trust in the government and the national currency peso has declined. For many Cubans, Bitcoin is seen as more trustworthy than the peso.

With the popularity of mobile internet in Cuba, many people have started using Bitcoin. In September 2021, the Central Bank of Cuba issued a law recognizing the validity of cryptocurrencies such as Bitcoin, making digital money a legal means of payment for commercial transactions.

A year later, reports indicated that due to sanctions, over 100,000 Cubans were using Bitcoin and other cryptocurrencies to cope with U.S. sanctions as they were unable to use internationally accepted payment tools.

Faced with 60 years of continuous economic sanctions from the United States, Cuba has had to seek economic alternatives. Reports suggest that Russia and Cuba, both facing U.S. sanctions, are exploring alternative solutions for cross-border payments, and cryptocurrency offers Cuba an option to circumvent financial restrictions.

Central African Republic: Africa's First Bitcoin Fiat Country

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

The Central African Republic is a small African country with a population of just over 5 million, considered one of the poorest countries in the world. Due to its early status as a French colony, the country has used the Central African franc as its legal currency. However, as France adopted the euro, the value of the Central African franc began to decline, prompting the government to turn its attention to cryptocurrency in an attempt to integrate it into the national economy.

However, as a poor African nation, the Central African Republic faces many real difficulties. The country's internet coverage is only 11%, with only about 14% of the population having access to electricity, and less than half of the people owning mobile phones. These factors have drawn widespread attention to the Central African Republic's decision to adopt cryptocurrency, which has been met with warnings from the International Monetary Fund.

Despite this, the Central African Republic insists on incorporating cryptocurrency into its national economy and launched the Sango platform based on Bitcoin sidechains in July 2022, initiating the presale of the Sango token.

Currently, the popularity of Bitcoin in the Central African Republic faces numerous challenges. Most people still prefer to use traditional currency to purchase goods instead of Bitcoin. Insufficient internet infrastructure and low smartphone penetration rates are also pressing issues that need to be addressed.

Venezuela: The First National Issued Digital Money

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

The Venezuelan government is actively promoting the Petro, allowing citizens to use the Petro to purchase homes, opening Petro counters in major banks, and distributing pensions or relief funds to retirees through the Petro. The government has also announced that in the future, domestic water, electricity, and taxes will all be paid using the Petro, forcibly introducing the Petro into the daily lives of residents.

In 2019, after Venezuela severed diplomatic ties with the United States, the U.S. imposed financial controls and oil sanctions on it. The Petro soon became an important tool for Venezuelans to circumvent U.S. sanctions and transfer funds.

The Pacific Island Nation of Tonga: The Future Bitcoin Fiat Country?

In January 2022, a former member of parliament from the Pacific Island nation of Tonga shared the specific plan for the country to adopt Bitcoin as legal tender. This proposal is based on El Salvador's legislation and aims to bring over 100,000 Tongans into the Bitcoin network.

One of the important reasons Tonga proposed using Bitcoin as legal tender is to address the issue of overseas remittances. About 40% of the national economy relies on remittances from nearly 300,000 overseas workers. Traditional remittance methods incur significant intermediary costs, while Bitcoin can effectively solve this problem.

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.

Summary

Under the global dominance of the US dollar, the currencies of small countries often become vassals. For countries caught in financial or currency crises, Digital Money is seen as a way out. The "original sin" theory of small country currencies proposed by American economist McKinnon points out that the results of small countries taking measures to counter the dollar often backfire.

For major powers, digital money is more of an investment asset. But for poor third-world countries, digital money is a currency that is actually in circulation and one of the few choices to break free from economic blockade under the dollar hegemony. In the future, more third-world countries may move towards the legalization 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.