Bitcoin dream brewing in Tonga

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A Tongan member of parliament hopes the country can copy El Salvador in adopting bitcoin as legal tender and pave the way for other Pacific islands to follow its revolutionary path, as enthusiasm for the potential of cryptocurrencies engulfs emerging economies.

Bitcoin advocate, Tongan MP, barrister and hereditary Tongan landowner Lord Fusitu’a says he will table an El Salvador-style bill for Tonga to adopt bitcoin as legal tender alongside the pa’anga at the next state opening of parliament in May 2022.

The first stage of his plan for Tonga to adopt the borderless currency will involve using digital wallet Strike on the Bitcoin Lightning Network to help Tonga’s diaspora of 250,000 to 300,000 overseas workers send money back to its island population of about 100,000.

“Tonga is the highest remittance-dependent country on earth,” Fusitu’a says. “Between 38 percent and 41.1 percent of our GDP, depending on which World Bank figures you use, is remittances. So, nearly half our economy is money sent back from our diaspora.

“To get those remittances to Tonga, Western Union takes a 30 percent bite out of them, on average. It can be 50 percent. In El Salvador, it’s closer to 50 percent. So, our GDP in 2020 was US$510 million, 40 percent of that is just over US$200 million so 30 percent of that or US$60 million is fees alone to Western Union.”

He says the adoption of the Strike Network to remit money back to Tonga will not require an act of parliament or endorsement by the National Reserve Bank of Tonga as it is a commercial solution to use bitcoin rails to send fiat in real time at virtually no cost.

“So instead of sending US$100 and receiving US$70, you send US$100 and get a $US100 – an extra 30 percent of disposable income. That’s like going to someone in the U.S and saying you’re not going to pay any more federal income tax.”

In 2005, the Tongan government introduced a 15 percent goods and services tax to try to offset a shortfall in income tax not paid by many citizens in its informal economy. “We have a population that is largely hand-to-mouth, artisanal, fishermen, farmers and handicraft makers,” Fusitu’a says.

“So if everyone has 30 percent extra income, they’re spending that into the 15 percent the government collects. So, the government coffers go up 30 percent as well, and the money’s there to build roads, and hospitals, and schools. So, the fisherman in the village can suddenly send his kids to school with breakfast, instead of without breakfast.

“Then they’ll get to the point where they go, hang on, I used to get by on that US$70 and for the first time they’ll have savings. Those savings become the foundation for generational wealth for people who had no concept of savings before because, now, they’re going to save in an asset [bitcoin] that can appreciate at 200 per cent per annum.”

The hereditary lord’s bitcoin project based on El Salvador’s crypto gamble remains little more than a dream for now, but he is confident he can overcome potential opposition from Tonga’s central bank, executive branch, or other MPs.

The Governor of the Reserve Bank of Tonga, Sione Ngongo Kioa, said the bank had no plans to adopt bitcoin as a legal tender alongside the Tongan pa‘anga. “The adoption of bitcoin as an official alternative currency, as you mentioned, is definitely unlikely,” he said.

On 15 June, the bank put out a statement saying it has sole legal responsibility for issuing currency or legal tender in Tonga. It also has the power to license any business offering crypto for investment in Tonga, with no licenses currently issued.

According to Lord Fusitu’a, the legislation to make bitcoin an alternative legal tender for all Tongan consumers and vendors will require the approval of a parliamentary majority equal to at least 14 of the Tongan legislative assembly’s 26 members.

“We have a house of 26 with 17 people’s reps and nine lords,” he says. “The lords, we always vote as a block. I’m the only barrister – not just among the lords but in the whole parliament – so the lords take my legal and economic advice always, that’s nine. So, we need another five. Three members of the other 17 have already come into contact with the asset [bitcoin] on their own personal journeys, so that’s 12, so we need two more out of 14.”

The bill will be tabled as a private member’s bill, with the prime minister and cabinet part of the 17 people’s representatives to vote in parliament. Tongan King Tupou VI must also assent to any bill as an apolitical check on the legislature and executive.

Fusitu’a shrugs off concerns that China or other multi-lateral development financiers such as the World Bank and International Monetary Fund might oppose the plan.

Lord Fusitu’a speaks at the UN’s Global Conference of Parliamentarians against Corruption. He is also chairman of the Commonwealth Pacific Parliamentary Group on Human Rights.

He says about 5 per cent of Tonga’s ethnic population is now Chinese.

“Our current king was the prime minister in the early 2000s when the World Bank’s austerity measures imposed on us for the loans included cutting public servants’ wages, which we did, but in 2006 it caused the only riots in our country’s history, so our king has seen how the IMF and World Bank gutted our economy and society previously,” he says.

“Our current prime minister was the auditor general then, so he saw what the World Bank and IMF did. So moving towards a monetary system that would see the back of those institutions, I can’t speak for them [the king and PM] obviously, but I would assume they wouldn’t be too upset after going through that.

“I’ll get up on international simulcast radio and video [to Tonga and its diaspora] and say, ‘I’ll give you 30 percent of disposable income back. Anyone who doesn’t want that for the country I’m willing to debate you now’. There’s not too many politicians that’ll take that bet on live radio and TV.”

On 01 October, the IMF released a report acknowledging that crypto ecosystems could replace official currencies in “unbanked” emerging economies, unless regulators step up to ensure financial stability.

In El Salvador, critics of President Nayib Bukele have accused him of an authoritarian vanity project in turning the country into a risky crypto laboratory, where citizens lose money if the bitcoin price falls. Ratings agency Moody’s downgraded El Salvador’s debt rating partly for this reason.

Today, Tonga’s pa’anga is pegged to five currencies and kept artificially low to protect its export industry, but this makes imports expensive.

The country’s only two commercial banks are ANZ and Bank of the South Pacific. Lord Fusitu’a disparages them as predators on Tongans and says bitcoin is the perfect tonic for the famously independent and proud island state’s economy.

“Bitcoin is the first truly global natively open monetary system. Blockchain is the most optimal storage medium for money if your goal is decentralisation and complete, egalitarian, democratisation of money,” he says.

“When a Tongan works in a meat packing plant in Geelong or picks fruit in Robinvale, those 12 hours are arbitrarily valued by someone else, by a central bank who are not elected officials.

You have no say in their election, and they arbitrarily set the supply of the currency, the oscillating value of the currency. So even the strongest currency on the planet, the US dollar, the world’s reserve currency, is losing value at 5 per cent per annum.”

Other Pacific islands such as Fiji, Vanuatu and Samoa could benefit from blockchain and crypto’s revolutionary power, according to Fusitu’a. Samoa has about 150,000 off-island citizens, versus 200,000 on-island.

Tonga’s Prime Minister’s Office was asked for comment, but had not responded at the time of publication. For now, there is little certainty the crypto ambitions can become law.

SOURCE: AUSTRALIA FINANCIAL REVIEW/PACNEWS