So after sending out a circular to banks prohibiting them from opening and continuing to hold accounts for individuals and entities that trade in bitcoin and the rest of cryptocurrencies, the RBZ has used the strongest of terms to warn all of us not to go near cryptos. This time the communique was signed by Dr John Mangudya, the central bank governor himself.
The Governor Says Zimbabwe Must Not Lead
The most interesting bit for me was at the end of the very long and verbose warning:
The Reserve Bank will continue to closely monitor regional and global cryptocurrency developments in order to inform policy direction.
This was really disappointing for me. Instead of proactive action, learning and study the RBZ has decided to MONITOR developments elsewhere. Why should our story be just about following others? It really disappoints me because Zimbabwe was really leading in this new technology and development.
Even Experts Think Banning Cryptos Is Not Wise
I am grateful to a Techzim reader who posted the following quote in the comments to an earlier article I wrote. The quote is from a written testimony of J. Christopher Giancarlo, chairmanof the US Commodity Futures Trading Commission before the United States Senate banking committee:
We are entering a new digital era in world financial markets. As we saw with the development of the Internet, we cannot put the technology genie back in the bottle. Virtual currencies mark a paradigm shift in how we think about payments, traditional financial processes, and engaging in economic activity. Ignoring these developments will not make them go away, nor is it a responsible regulatory response. The evolution of these assets, their volatility, and the interest they attract from a rising global millennial population demand serious examination.
Anyway, What Else Did VaMangudya Say?
Here’s the full statement from the man:
PRESS STATEMENT WARNING AGAINST TRADING IN CRYPTOCURRENCIES
1. Further to the Press Statement issued by the Reserve Bank of Zimbabwe (the Reserve Bank) on 20 December 2017 on the use of virtual currencies in Zimbabwe, the Reserve Bank wishes to reiterate that virtual currencies or cryptocurrencies such as Bitcoin and Litecoin do not have legal tender status as they are neither issued by the Reserve Bank nor guaranteed by the government.
2. The Reserve Bank of Zimbabwe has not authorised or licensed any person or entity or exchange for the issuance, sale, purchase, exchange or investment in any virtual currencies/coins/tokens in Zimbabwe. Exchanges such as Bitfinance (Private) Limited (Golix) and Styx24 are not licensed or regulated by the Reserve Bank.
3. For the avoidance of doubt, dealers and investors in any kind of cryptocurrency in Zimbabwe are not protected by law. Virtual currencies are traded in exchange platforms that are unregulated, all over the world.
4. The opacity and pseudonymous nature of virtual currencies presents regulatory concerns due to the potential risks to the public and financial stability. The nature of cryptocurrency transactions make them the currency of choice for money launderers and other criminals, seriously undermining global efforts to combat money laundering and the financing of terrorism. Anonymity renders the transactions difficult for law enforcement agencies to trace.
5. Financial regulators around the world have identified the dangers and risks presented by virtual currencies which include risk of loss due to price volatility, theft or fraud, money laundering and other criminal activities.
6. Cryptocurrencies can be used to facilitate tax evasion as well as externalization of funds in violation of a country’s laws. Any instrument or platform that results in a flow of foreign exchange or value into and out of Zimbabwe (or between residents and non-residents), is therefore subject to approval in terms of the Exchange Control Act. The anonymity of transactions in respect of virtual currencies have the potential to result in exchange control circumvention as the transfer would not be effected and reported by an Authorised Dealer in foreign exchange.
7. Central banks are stewards of public trust and have an obligation to safeguard the integrity of payment systems as it has implications on financial stability. Cryptocurrencies have strong linkages and Interconnectedness with standard means of payments and trading applications can rely on much of the same infrastructure that serves the overall financial system.
8. In order to safeguard the integrity safety and soundness of the country’s financial system, and to protect the public in general, all financial Institutions have been required to ensure that they maintain sound and adequate anti-money laundering controls to enable them to comply with customer identification, verification and transaction monitoring requirements. Further, the Reserve Bank has directed banking Institutions not to provide banking services to facilitate any person or entity dealing with or settling virtual currencies.
9. Members of the public are hereby further, warned not to participate in the trade of cryptocurrencies
10. Any person who buys, sells, or otherwise transacts in cryptocurrencies, whether online, or otherwise, does so at their own risk and will have no recourse to the Reserve Bank or to any regulatory authority in the country. ,
11. The Reserve Bank will continue to closely monitor regional and global cryptocurrency developments in order to inform policy direction.
Dr J P. Mangudya
The governor initially describes cryptos as pseudonymous (which they are) which means that if exchanges adopt standard KYC regimes (Golix and other exchanges have) crypto activity can be traced to individuals. Later the governor says the ‘anonymity’ of cryptos gives problems. Wait, which is it? Are they pseudonymous or anonymous? The governor cannot be at liberty to choose whatever words he wants to support a position.
Cryptos are pseudonymous and the beauty of the blockchain is that there is a permanent trace of all activity hence with a more creative and progressive attitude tracing money laundering and such evils could be easier on the blockchain than with cash definitely.
Is It Now Illegal To Hold Or Trade Bitcoin In Zimbabwe?
For all the words used by the governor, this remains unclear. In some part it appears as if he’s saying you can deal with cryptos at your own risk as long as you don’t use the banking system:
Any person who buys, sells, or otherwise transacts in cryptocurrencies, whether online, or otherwise, does so at their own risk and will have no recourse to the Reserve Bank or to any regulatory authority in the country
And it feels like it’s the banks themselves that have the burden of making sure they don’t receive crypto money. However, if I sell bitcoin to my brother, how will the banks ever know?
In another breath it sounds as if trading in cryptos is banned outrightly:
The anonymity of transactions in respect of virtual currencies have the potential to result in exchange control circumvention as the transfer would not be effected and reported by an Authorised Dealer in foreign exchange.
I will leave you to make your own conclusions…