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Wednesday, March 22, 2023

How Bitcoin would save 30% of its GDP in Tonga

King of cryptos in the Kingdom of Tonga – This parliamentarian wants to legalize Bitcoin (BTC) , in particular to reduce transaction fees on diaspora remittances. This ambitious project is however far from having the support of the central bank of the Kingdom.

Legalizing Bitcoin in the Kingdom of Tonga: the pros and cons

Tonga’s Niuas MP Lord Fusitu’a said in an interview with the Financial Review that he was working on a bill to make Bitcoin legal tender . The bill will be presented to parliament in May 2022.

However, the project encountered the reluctance of the Reserve bank of Tonga . The governor of the central bank, Sione Ngongo Kioa, had ruled out the possibility of Bitcoin becoming legal tender alongside the current fiat currency, the Tongan pa’anga:

“The adoption of bitcoin as an official alternative currency, as you mentioned, is definitely unlikely”

Bitcoin to strengthen Tonga’s economic backbone

Lord Fusitu’a believes that the country is losing a large part of the funds from its diaspora in service fees on transfer platforms such as Western Union. According to him, the latter monopolizes 30% of the remittances of these funds  :

“So our GDP in 2020 was $ 510 million and 30% of that amount represents Western Union fees [paid by the Tongan diaspora]”

Lord Fusitu’a suggests that citizens use the Strike digital wallet based on the Lightning network, to drastically reduce transfer costs  :

“So instead of sending US $ 100 and receiving 70, you send US $ 100 and receive US $ 100, which is 30% more disposable income. It is as if you were going to tell someone in the United States that you are no longer going to pay federal income tax. “

Tonga is home to around 100,000 people. The foreign diaspora, made up of nearly 250,000 to 300,000 Tongans, is a pillar of the national economy  :

“Remittances represent between 38% and 41.1% of our GDP, depending on the World Bank figures you use. Thus, nearly half of our economy is made up of money sent by our diaspora ”

Lord Fusitu’a wants to follow El Salvador’s example, but there is no certainty for the moment that his bill will obtain all the votes necessary for its adoption. He had expressed his enthusiasm for Bitcoin in the past, stating that he wanted to buy Bitcoins with the Kingdom’s $ 750 million reserve .

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