What will help it and what will hinder it
Over the past few weeks, the people of Abkhazia have been discussing the possibility of using a new monetary form – national cryptocurrency.
“Abkhazia could become the first country in the world to issue a national cryptocurrency, but time is short so we have to hurry,” said Adgur Ardzinba, the Minister of Economy.
About a month ago, Abkhazia presented its blockchain-startup worth one billion dollars at a conference in Moscow. The conference, organized by BCSG, was symbolically called ‘Blockchain: there is no turning back’.
The Abkhazian presentation stated that the republic will need a billion dollars for the project. They plan to obtain this by releasing a limited number of tokens called ARC, or “Abkhazian Republic Coin”. No more than eight billion virtual coins are planned to be issued.
The project’s authors believe that creation of an Abkhazian cryptocurrency will make the local economy interesting for foreign investors, who don’t yet dare to invest in Abkhazia due to existing international sanctions. The main argument is that, unlike ordinary money, the circulation of cryptocurrency cannot be traced in any way. Accordingly, a hypothetical investor would be free from possible persecution.
“One can move forward by using a non-standard approach”
“We need to take our economic situation and restrictions into account,” said Ardzinba. “We don’t have wide political recognition, and we are constantly in search of non-standard solutions to enable us to reach an acceptable level of development. Standard schemes are also necessary, but one can move forward by using a non-standard approach.”
The incentive factor for potential investors should be cheap electricity. The local tariff for legal entities is only 80 kopecks per kWh (15 cents). Additionally, investors will also be promised exemption from all types of taxes for three years.
Potential difficulties in establishing Abkhazia’s cryptocurrency
The price of 80 kopeks per kWh of electricity makes Abkhazia a very profitable option. In order to create cryptocurrency, a large amount of electricity is required. However, the supply of electricity is already a serious problem in the republic.
Frequent electrical outages, low voltage within the network – these features of life in Abkhazia raise doubts that it will be possible to ensure the uninterrupted electrical supply necessary in order to create a huge amount of virtual currency.
Among the numerous drawbacks of the project is that Abkhazia lacks its own currency. Unlike in China where they expect the emergence of a state cryptocurrency in the middle of 2018, counting on it to stabilize the yuan and strengthen the country’s financial situation as a whole. The normal system of bank cards doesn’t even work in Abkhazia.
“You can create a currency in any state and call it anything you like, but the main question is will it have value?” said JAMnews Russian businessman Igor Varov who is currently working in Abkhazia.
“In Venezuela the value of the currency fell by hundreds of percent in just a month. We all know plenty of cases when even the state currency fell at a terrible rate, devalued, and so on. Here, everything is inflated and unnatural. These bitcoins aren’t providing anything.”
According to Varov, this project is just too complex in its initial stage, and it’s not entirely clear ‘why it should be accepted, when the financial system in the country is not working effectively’.
He also said that it is even more pointless to create a ‘tax-free paradise’ for investors.
“Abkhazia is very much in need of tax revenue. It’s because of taxes that the country lives and develops. To create a project that will draw in a specific ‘group of people’ on behalf of the state is wrong,” Varov said.
“However, I doubt that this project will be implemented,” he added.
Ardzinba actively disagrees with this approach.
“We guarantee that all funds raised will be dedicated to the development of the Abkhazian economy and modernization of its infrastructure. And this, in turn, will lead to the economic growth of our country, and the growth of the value of the Abkhazian cryptocurrency in the world market accordingly,” said Adgur Ardzinba.
Abkhaz journalist Anton Krivenyuk said that, personally, the minister did not convince him.
“First there must be hard work and development of the economy. The idea of creating your own cryptocurrency – it’s not a scam of course, but this is some very naïve intention to break the jackpot while the opportunity is there.”