Bond Notes, an untrusted government & the Bitcoin opportunity in Zimbabwe

   

Earlier today we wrote on how tech can help Zimbabwe in both a short and long term sense in its current predicament of a USD cash shortage and new Bond notes that Zimbabweans are generally very skeptical about.

As indicated in that article, the loss of trust is a big factor in Zimbabwe’s cash shortage problem and the Bond Notes. Forget that foreign investors don’t trust the government with their FDI (which would help balance the Export Import discrepancy), Zimbabwe’s own local people:

  • don’t trust that the government won’t wantonly print more notes than the $200 million Afreximbank loan facility guarantees. The question of whether this is possible or not isn’t even under consideration by most.
  • don’t trust that the politically powerful won’t corruptly help themselves to generous amounts of USD cash in bank accounts to fund their business imports/foreign trips/new expensive cars/foreign university fees for children/political campaigning/etc…
  • don’t trust that government won’t raid their USD cash in the bank accounts to fund its debts
  • don’t trust that the government won’t suddenly change its mind on pronunciations it’s making now and suddenly implement new rules without honouring obligations created by the existing ones.

Now to consider if Bitcoin can help with some of these problems and if maybe the government should consider officially allowing the trade of Bitcoin locally.

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First, What is Bitcoin

Bitcoin is a digital and global money system (currency). It allows for the trading of money across the internet. The Bitcoins have an assigned USD value at any given point just like a regular cash currency (called fiat money). Bitcoins were invented in such a way that, unlike other digital things they can’t be copied over and over again and a person cannot spend a Bitcoin more than once. For a simple explanation even a five-year-old will understand, please read this article.

Though largely considered a currency, many countries including the US, define it as a commodity instead. Globally, most countries don’t have regulation against the use of Bitcoin except for a few like Russia and China. Well known companies among them Dell, Expedia, Microsoft and Bloomberg officially recognise and provide options to pay for their products using Bitcoin.

Yes, Bitcoin is volatile, but it solves trust

Bitcoin is notoriously volatile, but nowhere close to the unpredictable nature of Zimbabwe’s current government, perceived or real. The more important thing however is that reliance on Bitcoin helps with Zimbabwe’s trust problem. No one needs to trust the government to use a crypto-currency like Bitcoin or to store their money in it. The crypto-currency takes most of the decision-making authority out of the hands of individuals leaving it to a good extent to the mathematics in machines.

Not legal tender, just tradeable commodity

To be clear, there’s no need to declare Bitcoins legal tender. It may just be in officially recognition of it as a tradeable commodity in Zimbabwe. This would free up space for unhindered market driven growth of the adoption of the Bitcoin by individuals and maybe even financial institutions and mobile money operators.

A likely scenario that would result is that some people would begin to trust keeping their money in Bitcoin wallets than in Bond Notes that a government can theoretically print more of. While there is the possibility of people mopping up whatever little USD is in the country to buy Bitcoins, if more people have their money stored in Bitcoin wallets, businesses would see reason to start accepting these Bitcoin as payment which would increase liquidity.

One interesting thing is that the success of mobile money in Zimbabwe has prepared people well for using a digital currency. Added to that the ever growing internet penetration, thanks to the need to be on WhatsApp, means most Zimbabweans that need to can have a Bitcoin wallet app and transact.

Such a move would also likely result in financial institutions opening up to the possibility of being the host banks for Bitcoin exchanges locally, which would mean that the local USD buying the Bitcoins would not even need to leave the country’s borders.

Bond Notes vs Bitcoin opportunity in accelerating Diaspora remittances

An important consideration is the likely impact this might have on diaspora remittances. Most people in the diaspora migrated because they lacked faith in the ability of government to create opportunity and to manage the economy well, after they experienced its failure to do so over decades. Who to blame for the failure, sanctions or corruption, is ofcourse a different issue.

There’s no doubt therefore that the Bond Notes announcement spooked those in the diaspora, and they are concerned about the security of the money they send home. Yes, the government assures them the money won’t be touched but the trust issues mentioned above apply.

A Bitcoin wallet owned by their relative back home would therefore feel less vulnerable to the fingers of an untrusted government. This would work in the government’s favour as there’s third party guarantee (the Bitcoin system) which the diaspora can trust better.

Add to that the possibility of Bitcoin remittances significantly lowering the transfer fees, or even the rare possibility (that BitFinance co-founder Tawanda Kembo pointed out to me recently) of a recipient receiving more fiat money than was sent thanks to Bitcoin exchange rate changes.

Bitcoin security against currency mopping

Another interesting thing is the understandable argument by the RBZ for why they chose Bond Notes instead of just injecting the $200 million USD cash in the economy. “For as long as we are using a currency which is appreciating when we have neighbours that have currencies which are depreciating, we become a mopping house. People come to mop up our US dollars. Any US dollars we bring, it will still vanish (as) people want USD as a store of value,” the Finance Minister Chinamasa said this week. Essentially, Bond Notes are not legal tender outside Zimbabwe so they can’t be mopped up and readily spent elsewhere.

Bitcoins, because they are still very experimental and not in high demand globally may adequately provide this security against currency mopping. They sit conveniently (for our situation) between being relatively trustworthy and not being readily spendable outside Zim borders.

Experimental and adjust as we go

Depending on the initial response, the Reserve Bank can then encourage certain use cases and innovations of Bitcoin and discourage others with swift and soft regulation. Zimbabweans and their relatives outside the countries would know that whatever changes come, their Bitcoin can always be sold on the global market to recover some significant value.

Allowing Bitcoin would therefore be experimental, but given we have no currency of our own, it’s probably as good an experiment as the Bond Notes. Likely even better given the lack of trust in a Zimbabwe government managed currency system.

Image via trinitynews.ie


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