THE BITCOIN OPTION
Chilling memories of Zimbabwe’s record hyperinflation in 2008, which flattened the country’s savings and monetary assets, has had Zimbabwe in a tailspin as the economy has worsened. This has sparked an unlikely rush for trade in bitcoins.
Finance institutions in the country such as Standard Bank’s Stanbic Bank Zimbabwe and the Ecocash mobile money platform now demand that account holders fund their cards with hard currency before use outside the country. Stanbic Bank Zimbabwe last month said “prior limit arrangements with the bank will be required” from November.
But an unlikely alternative for international payments has emerged in the form of bitcoin, whose trade has spiked in Zimbabwe. Between November 1 and Tuesday bitcoin traded at around US$13,400 on the Golix bitcoin exchange platform in Harare (formerly Bitfinance), compared with current global bitcoin prices of above $7,000.
This comes as Zimbabwe continues to struggle for liquidity, with the Bankers Association of Zimbabwe saying its members are now unable to offer cash withdrawal services to individuals.
Bitcoin is a virtual digital currency that is openly traded on the Internet using blockchain, a booming software platform for digital assets.
“Bitcoin prices are driven by supply and demand. There is a lot of demand for bitcoin in Zimbabwe, mostly from people who either see it as a store of value or [who] want to make payments outside for things such as software tools and other services. Some use it to import cars from Japan,” says Taurai Chinyamakobvu, an expert in bitcoin and tech innovator based in Harare.
Bitcoin trade facilitators at Golix say they accept bank transfers or mobile money for buying bitcoins and this could be the reason the price is high.
Yeukai Kusangaya, a bitcoin expert at Golix, told the Financial Mail that the exchange is bracing for regulatory policies to be issued by the Reserve Bank of Zimbabwe.
“There are no regulations that govern the use of bitcoin, but some policies will be coming. It is not illegal to possess bitcoin, but bitcoin is also not legal tender and is reliant on willing sellers and buyers as it is a store of value and a means for international purchases owing to transaction difficulties,” Kusangaya says.
Zimbabwe frequently fails to pay for key imports such as electricity, medicines and raw materials on time due to forex shortages.
The Reserve Bank is processing foreign payments from Zimbabwe using a strict priority list, and government officials say: “The days of buying trinkets are over” as the country seeks to preserve scarce forex resources. The central bank has reportedly shied away from regulating bitcoin as it does not “understand it at the moment”.
President Robert Mugabe’s government ditched the Zimbabwean dollar in 2009 and introduced a multiple currency basket hedged around the US dollar after record hyperinflation, which resulted in empty shelves and daily increases in prices.
In 2016, the government said dollarisation had worked against the country, as the economy had become overpriced and the country had become a source for cheap US dollars for international companies. Bank notes in circulation had also started to run low.
This paved the way for the introduction of bond notes and coins, Zimbabwe’s version of the greenback, which were supposed to have equal value to the American currency.
The bond notes have, however, failed to stem the tide of currency shortages in the Zimbabwean economy. This, together with forex shortages, has caused companies such as Delta Corp, British American Tobacco, Tiger Brands’ National Foods unit and several others to fail to pay dividends to foreign shareholders.
Sources in Zimbabwe said last week that some companies are already embracing bitcoin as a medium of paying for imports such as software, vehicles and other goods.
But it remains to be seen whether the cryptocurrency can quickly evolve in Zimbabwe and become a means for dividend payments.
Two banking sector finance managers say it is unlikely, highlighting that the banking sector is still hesitant to fully embrace bitcoin for commercial payments abroad, though they say they have “received requests” for payments for other goods using bitcoin.
The Bitcoinist publication wrote this month that in Zimbabwe, “people are turning to bitcoin mining and wallet referrals to generate an income” and to invest. “While the bitcoin community in Zimbabwe is small, it is vibrant and growing,” it added.