In this article, I shall be looking at RBZ’s Sandbox concept and what it means for 3 core areas. These are cryptocurrencies, fintech, and the possibility of a central bank digital currency. In 2020 the Reserve Bank of Zimbabwe (RBZ) indicated that it would start working towards regulating digital currencies. This was interesting considering how that was a turnaround from their initial dismissive stance towards cryptocurrencies. The sandbox is named rather appropriately (or inappropriately depending on how you look at it) after the sandpits found in children’s playgrounds at creches and primary schools.
The RBZ Sandbox Concept Regarding Cryptocurrencies
Early last year the RBZ said the following: “We have already started to come up with a fintech framework because, in regulation, everything should be well structured. The framework, which is a regulatory sandbox, will be assessing the cryptocurrency companies as to how they are going to operate.
Once you enter the sandbox you either exist as a bonafide product to enter the market or you are guided to say that you need to partner with a bank, a mobile money platform or your product needs to be licensed like a microfinance company.
The sandbox will be an experimenting zone. Once the sandbox is there, there will be an application criterion, which will also act in the same capacity as the sandbox.”
What this simply means is that RBZ will create a controlled environment in which financial products and services can be listed. The sandbox is scheduled to become the operational beginning of March. It seeks to make it possible for fintech innovations to be connected to the mainstream financial system.
Implications For Fintech
The sandbox is meant to streamline regulation regarding fintech players in Zimbabwe. You cannot downplay the role of fintech players in the overall economic development of nations nowadays. By excluding them you ground some of the most powerful entities which can push economies forward.
One of the key things the sandbox will address is the challenges that most fintech players have been facing. Most of you are aware of how making online payments tends to be problematic in Zimbabwe. Essentially financial inclusion has been seriously lacking when it comes to fintech in Zimbabwe.
There is largely an unhealthy reliance on mobile money which is confined to just Zimbabwe. Often time I hear people asking about PayPal and the like – this sandbox concept might open avenues for global partnerships that will open up such platforms for full use in Zimbabwe. There will also be great prospects for much smaller fintech players. All along regulation has been very restrictive for them which will most likely become a thing of the past with this new sandbox concept.
With the proliferation of e-commerce in Zimbabwe, this will be great for fintech players. Ideally, it should be easy for such players to operate thus making it easy for people to transact online. A fintech player should find it easy to link up with local financial institutions for that to happen. Not all fintech players have what it takes to register as financial institutions yet all along it was mandatory they register as such. The sandbox concept will enable them to list or be registered according to their size and extent. When this is achieved it promotes financial inclusion nationwide.
Implications For Cryptocurrencies
It is no mystery that the uptake of cryptocurrencies is growing immensely globally. Thus it is expected that the sandbox should cater for cryptocurrencies. Some of the notable cryptocurrency startups in Zimbabwe are Zimbocash and Phykraun. Their cryptocurrencies are Zash and Dystater respectively. Anyways, there must be a framework that enables such homegrown cryptocurrencies to be incorporated into the mainstream. In principle, it should become easy for people to transact using these cryptocurrencies. In other nations, it is now normal for someone to pay for goods or services using, for example, Bitcoin. The sandbox concept is going to probably make this happen in the medium to long term. However, there could be some concerns; one is most particular actually.
Here is something I once said time back, “…the central bank’s core operating principle is centralization (as is apparent in the name central bank). This goes against the core operating principle of cryptocurrencies which is decentralization.”
Things could go either way and we shall have to wait and see how things turn out. Apparently, in other countries, cryptocurrencies are symbiotically co-existing with fiat currencies. This means it is also possible for that to happen here in Zimbabwe. However, Zimbabwe is not your typical country; we are extremely unique and have very complex fiscal and monetary dynamics. Thus the integration of cryptocurrencies into the mainstream might not be as easy. The other issue stems from the regulatory dynamics in Zimbabwe in general. Will the decentralization aspect of cryptocurrencies be preserved or it will be threatened? These are some of the major concerns regarding the sandbox concept and cryptocurrencies.
If the RBZ warms up to mainstream adoption of cryptocurrencies, that can open up some interesting possibilities. For example, it could mean the RBZ might ultimately develop a central bank digital currency. I believe that can be an amazing development. What are the chances of that happening though? Let us know in the comments.
The RBZ said they in due course will share with the public the sandbox model they will be using. At the moment it has not yet been availed so we will have a detailed inside look once it becomes available. I think there is a 50-50 chance this sandbox concept can either unlock great value or it can create more problems. What do you think?