The Application and Impact of Digital Money in Third World Countries

For developed countries, digital money is more of a technological innovation, but for third world countries, it has become an important tool to maintain purchasing power and break through financial barriers. More and more developing countries are beginning to incorporate digital money into their financial systems, hoping to find new avenues for economic development.

Since El Salvador became the first country to adopt Bitcoin as legal tender in June 2021, several third-world countries such as Cuba and the Central African Republic have followed suit, beginning the process of legalizing Digital Money. This article will organize and analyze the current status of these countries' adoption of Digital Money.

El Salvador: The Pioneer of Bitcoin as Legal Tender

El Salvador has long been known for its high crime rates and violence issues. In 2021, the country's parliament officially passed the Bitcoin law, becoming the first country in the world to make Bitcoin legal tender. Although this move has sparked considerable controversy, it has also brought some positive effects to the country.

In the first year after adopting Bitcoin, El Salvador's GDP grew by 10.3%, mainly thanks to the recovery of international tourism. The country has also proposed a series of related plans, such as building Bitcoin beaches and mining using geothermal energy from volcanoes.

Despite facing numerous challenges, polls show that most Salvadorans still support the current president's Bitcoin policy. This year, the country began to regulate digital securities and plans to issue Bitcoin-backed bonds.

Although the Bitcoin held by El Salvador is currently at a certain loss, the government believes this only accounts for a small proportion of its finances. The International Monetary Fund (IMF) is cautious about this, but it also acknowledges that the risks of Bitcoin "have not yet materialized in El Salvador."

Cuba: A New Tool to Combat Sanctions

In June 2021, Cuba became the second country to adopt Bitcoin as legal tender, following El Salvador. Unlike El Salvador, Cuba's move is primarily aimed at addressing economic sanctions from the United States.

Due to long-term US sanctions, Cuba needs to find ways to bypass the dollar framework. In addition, with high domestic inflation and a declining trust in the government, many Cubans have begun to turn to the use of Bitcoin. In September 2021, the Central Bank of Cuba officially recognized cryptocurrencies like Bitcoin as legal means of payment.

According to reports, more than 100,000 Cubans are currently using Bitcoin and other cryptocurrencies to cope with US sanctions. With international payment tools like PayPal being unavailable, cryptocurrencies have provided a new source of funding for Cuba.

Central African Republic: Pioneer of Digital Money in Africa

In April 2022, the Central African Republic became the first African country to adopt Bitcoin as legal tender. As a poor country, the Central African Republic faces numerous challenges, such as low internet coverage and limited electricity supply.

Nevertheless, the country insists on incorporating cryptocurrency into its national economy. In July 2022, the Central African Republic launched the Sango platform based on Bitcoin sidechains and plans to issue the Sango coin.

However, under the circumstances of insufficient infrastructure, the popularization of Bitcoin still faces many difficulties. At present, most people are still accustomed to using traditional currency for transactions.

Venezuela: The Attempt of Petro Coin

In 2018, Venezuela launched the official digital currency Petro, becoming the first country to issue a national digital currency. The Petro is linked to the country's reserves of oil, natural gas, and other resources, with a total issuance of 100 million coins.

The Venezuelan government actively promotes the use of the Petro coin, including allowing its use for purchasing real estate, paying utility bills, and taxes. Against the backdrop of increasing sanctions from the United States, the Petro coin has also become a means for Venezuela to evade financial restrictions.

Tonga: The Future Bitcoin Fiat Nation?

The Pacific island nation of Tonga is also considering adopting Bitcoin as legal tender. The proposal put forward by former MP Lord Fusitu'a referenced the experience of El Salvador, aiming to bring the country's over 100,000 people into the Bitcoin network.

Tonga's economy heavily relies on remittances from overseas workers, with about 40% of the national economy built on this foundation. Adopting Bitcoin as legal tender could help reduce remittance costs and improve efficiency.

Conclusion

Under the global dollar hegemony, Digital Money has provided new economic avenues for many third world countries. For these countries, Digital Money is not only an investment asset but also a currency in actual circulation and a tool to evade economic sanctions.

In the future, more developing countries may join the ranks of digital money fiatization. This trend provides these countries with new ideas for exploring an independent financial currency system, while also bringing many challenges and risks. As countries promote the application of digital money, they need to carefully assess its impact and prepare corresponding institutional and infrastructural developments.