On April 27, The Central African Republic's parliament voted unanimously to make Bitcoin (BTC 0.18%) legal tender. Unless you are familiar with your geography or keep up with politics in central Africa, this might be your first time even knowing such a country exists. The Central African Republic is now the second country to do so in the last year. El Salvador was the first country to recognize Bitcoin as legal tender in June 2021.
Image source: Getty Images.
Reasoning behind the law
Understanding the Central African Republic's history helps clear the air on potential motives for this decision. The country is a former colony of France. Many of these former colonies still rely on the governments and financial institutions that once ruled them.
The Central African Republic uses the CFA franc. This currency is used by six other countries within the region and pegged to the euro. To maintain this peg, the Bank of Central African States (BEAC) who oversees these six countries' banking and financial policies is required to keep at least 50% of its foreign assets in the French treasury.
Some believe this has limited economic development in the country. An embrace of Bitcoin will sever dependence on the euro and their former French colonial power.
Bitcoin offers a way out
Countries that use currencies tied to Western economies have little to no say in economic policy. This is one of the main reasons why El Salvador made a similar move. Policies enacted in the U.S. or France eventually trickle down and negatively impact these countries' economies.
International economic policy tends to be decided by countries with the wealthiest economies. Naturally, these policies favor their own domestic interests. Smaller economies are left on the periphery and forced to deal with the hand they are dealt.
Now there is a way out. Bitcoin levels the playing field. Because Bitcoin cannot be manipulated or controlled by a governing authority, smaller economies can make their own policies without needing consent from other world powers. Governments will no longer be able to control the money supply. Countries that once got the short end of the economic stick can now control their own financial destiny.
Invest in history
Only time will tell how these countries fare. Yet as investors, we should see the bigger picture. The year is 2022. The second country just adopted Bitcoin. Other countries in similar situations like El Salvador and the Central African Republic will notice that Bitcoin is an exit from the status quo.
Critics of Bitcoin will argue only small countries are the ones using the cryptocurrency. And for now they are right. But to even utter those words shows how far Bitcoin has come. The day when a developed economy in Asia, the Middle East, or the West enacts similar Bitcoin laws like El Salvador and the Central African Republic will be the day when Bitcoin undoubtedly cements itself.
Investors should know that this day is coming sooner than later. You don't have to look far to find examples of this progress. In Colorado citizens can pay taxes in Bitcoin. In Arizona, legislation was introduced to make Bitcoin legal tender. Take the opportunity now to gain exposure to Bitcoin. Ignore the short term price fluctuations.
A quote from a personal favorite book, The Alchemist, seems fitting. "Everything that happens once can never happen again. But everything that happens twice will surely happen a third time."
