The Marathon Ethiopia And Bitcoin

Africa is large, young and dynamic. What happens when a country like Ethiopia puts Bitcoin to the ultimate stress test?

I. Little Brother Bitcoin

Ethiopia, like most countries, is bound to have a Central Bank Digital Currency (CBDC), in the flavor of a U.S. dollar backed Ethiopian birr. This new CBDC will allow the State to continue printing currency in the digital age.

As reasoned by Alex Gladstein in Cato Journal’s recent essay, “Financial Freedom and Privacy in the Post-Cash World”, “Society is currently undergoing a historic shift away from paper‐based, bearer asset daily money toward completely electronic, corporate ledger daily money. This change is part of a long trend of disuse of all bearer instruments, like stock certificates and bearer bonds.”

This strategic removal of cash (and some might argue privacy) from the economy will allow the State to go on spending, which will add to the inflation and debt cycle via its new digital currency. Some actors, including bureaucrats and self-serving organizations, will enjoy this increased State spending. Viewed from the perspective that petroleum production backs the USD, it’s fair to conclude that many of the actors in this inflationary-debt bubble have been acting in bad faith. More toxically, it may be commented that these “fiduciary” leaders of money and policy are intellectually dishonest and morally bankrupt. Henry Kissinger, for example, might add that “It is not a matter of what is true that counts, but a matter of what is perceived to be true.” And any honest dissenters to this hegemony, with the late Jamal Khashoggi coming to mind, are often met with a deadly response.

Ethio Telecom (the State-owned monopoly provider) introducing TeleBirr is a decades-late step in the right direction toward digital money. Integration and application building, as well as hardware and infrastructure challenges still remain, but new capital will allow for a larger customer base. At present, only 20-25% of Ethiopians have access to telecom services.

In the next few months we will likely continue to see a rise in bitcoin price. Value will continue to be created by a decentralized pool of miners and node operators and stored in bitcoin. As solutions on the Lightning Network and Layer 2 offer daily users near zero fees and under one second transaction times, adoption in young countries like Ethiopia will happen sooner than we think. And given its finite supply and 130 year marathon of increasing computational difficulty, bitcoin, with its decentralized ambition for a new money, may just very well be the new standard as proclaimed by Saifedean Ammous.

This new standard, unresponsive to regulation or influence, will upset the Ethiopian government, much as a little brother might unnerve a powerful big brother. Both will coexist, but because only the former will heed the lessons of the past, the little brother will provide more value. In contrast with fiat currency bitcoin is non-inflationary, incorruptible and immutably secured by precious (and increasingly renewable) energy. It’s worth noting that not a single “alternative” coin has improved on this protocol. Even more important, this enviable separation of state and money will lead to drastic shifts in global allegiances. After reading Befekadu Degefe in the Journal of Ethiopian Studies, “The Making of the Ethiopian National Currency 1941-45”, we can see that the history of the Ethiopian Birr is one of Italian brutality and British interest. The Emperor Haile Selassie, cautious to accept any proposal from foreign interest, instead proposed that the national currency be provided by the State Bank of Ethiopia and his trusted advisors as to ensure a convertibility to silver and gold bullion through the then Maria Theresa dollar. This standard, of course, fell once Richard Nixon took the USD off the gold standard in 1971.

II. Bitcoin for Billions

Most Ethiopian’s will always remember where they were at the time of artist and activist Hachalu Hundessa’s assassination. Between the hours of nightfall on June 29, 2020 and the following Tuesday morning, tragic news of Hundessa’s death worked its way through informal channels. As Telegram groups grew frantic and fearful as to what would happen next, Addis Ababa turned frigid. 2020 was about to get even more fragile. Ethiopia lost internet as quickly as most neighborhoods lost electricity that morning. And there would be no more connections made through the state-owned monopoly telecom provider for the next three weeks.

Much like USD, Bitcoin is not legal tender in Ethiopia. And because of telecom limitations, more than 70 million Ethiopians are currently incapable of opening a digital wallet. Those are the only two challenges I can find in Ethiopia for widespread adoption of bitcoin as both a store of value and as a currency to be used for daily transactions.

Given the volatility of bitcoin, it may be the case that, for practical reasons, the United States dollar will be used as a temporary unit of account. But over time, with revisions in law and global alliances, and with it furiously increasing velocity of use, bitcoin will become a standard countries like Ethiopia cannot escape.

Similar to Greater Africa, over 70% of Ethiopia is under the age of 27. The majority of Ethiopians are living under increasingly expensive conditions which create inflated prices and diminishing returns of value. The Ethiopian Birr, at roughly 20% per year, is debased through a variety of factors. These factors exist within an academic cocktail of printing, borrowing, spending, and dead aid (reference to Zambian economist Dambisa Moyo). Whatever Ethiopia’s growth rate, the exports seem to never be enough. As a result, the price of a holiday lamb (think of it as a holiday ham) has gone from 1,200 Ethiopian Birr ($66.67) in 2014 to an average price of 5,700 Ethiopian Birr ($142.50) in 2021. Meanwhile salaries have increased at a much slower pace.

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