A few months ago while aimlessly surfing the web, I came across an article on a local website. It was about how bitcoin could be one of the ingredients in the magic pill that could somehow cure what ails our economy. The author, an evident bitcoin enthusiast, could barely contain his excitement about how this miracle of modern technology could be the balm that soothes the suffering caused by the harsh Zimbabwean economy. The article exuded a lot of excitement but did not offer any useful suggestions on how victims of this economy, like myself, could improve their lot using this digital currency. I therefore decided to analyse how bitcoin could, in the future, possibly make life a bit more bearable on this ‘Jewel of Africa’ that has managed to lose most of its lustre.
To begin with, bitcoin has several obvious advantages. Unlike Zimbabwe’s highly contentious bond note, bitcoin can be used for foreign payments. This makes it attractive to potential importers whose Visa and Mastercards have been rendered useless by the current situation. If bitcoins somehow came into your possession and you have a foreign supplier who accepts them, you can easily make your purchase directly from your laptop without the foreign currency blood hounds being any the wiser.
Even though bitcoin is highly volatile, it cannot be significantly affected by any local piece of legislation or economic policy due to its widespread international use and the relative small size of our nation. When things are not that bad, economically speaking, cryptocurrencies’ independence from the country’s fortunes may not seem like much, but speaking as someone who has seen the worst of hyperinflation, I can safely say they are better than notes which could not lose their value any faster if they were on fire. Bitcoin is an anarchist’s dream come true. It could be the main currency of a thriving informal sector in the very unlikely event that a few glaring challenges were overcome.
Even if local businesses were to denounce both the formal financial institutions and what the government deems to be legal tender in favour of an alternative such as bitcoin, they will quickly realise that the government of Zimbabwe is one of the country’s biggest employers. Therefore the government makes a very significant contribution of whatever is considered cash at the time, into the country’s money circulation. Turning up your nose at the only means your customers have of paying you is bad business. Banks are also other major contributors through loans and such. These same banks are kept on very short leashes by the government through the Reserve bank. The belief that any kind of financial system can operate independently of the government and its various institutions is unrealistic.
On some days when they are feeling particularly depressed about the general state of the economy some amateur economists, in what they suppose is a feat of creativity, suggest adopting the Rand, Pula or any other foreign currency to replace the US dollar that we seem to be lacking. This is because for some people shortage of foreign currency’ and ‘shortage of the USD are unrelated statements. Widely adopting the bitcoin as a means of exchange would encounter the same challenge adopting other foreign currencies faces, namely that we do not have a local source of such and our balance of trade will eventually run us dry of any foreign currency we use and eventually devalue any local version we come up with.
Over the past few years some people have tried to treat bitcoin as an investment but its inherent volatility is more attractive to speculators. The value of bitcoin, like most commodities is dictated by the laws of supply and demand. The supply is generally constant, therefore its price fluctuations are dependent on demand. Even though bitcoin is decentralized and is independent of any government, it is particularly susceptible to the policies of the bigger developed countries like the US and China. When China banned the use and trading of cryptocurrency by its nationals, the value of bitcoin plummeted.
Some international bitcoin exchanges are so big that any hack, theft or system glitch that occurs on that particular exchange can trigger a significant loss in the value of the cryptocurrency the world over. The problem with such events is that they are surprisingly common and highly unpredictable. Combine this unpredictability with the generally nervous disposition of bitcoin owners, you have an asset that can shed most of its value in a few hours. This makes bitcoin terrible as an investment and store of value. This time last year, in December 2017, 1 bitcoin was equal to US$17 000, and at the time of this writing, 1 bitcoin = US$3 450.
In late 2017 I was invited by a friend to some convention organised by local “bitcoin miners” in Bulawayo. I went to the event out of curiosity. Within the first fifteen minutes I realised that the so-called miners knew as much about bitcoin mining as their eager audience. Instead of talking about using high powered computers to mine for bitcoin (as it is done), they presented what was evidently a thinly veiled pyramid scheme. ‘Bitcoin’ was just used to both excite and confuse the potential recruits. It appears that bitcoin’s popularity has mostly preceded any real knowledge about it, which brings me to my next point: the lack of real knowledge about bitcoin coupled with the speculations makes it highly probable that the current value of a bitcoin (a few thousand USD) is a bubble. There is no sure way of telling since bubbles can only be identified in retrospect.
Even though the government of Zimbabwe, like most other governments has no direct control over bitcoin transactions, it can remove or limit the systems that enable trade in the currency. Governments do like their control and sometime this year the RBZ took time off its money conjuring duties to disrupt the operations of some local cryptocurrency related businesses without even coming up with any new law. So officially, bitcoin trading is banned in Zimbabwe.
For now it appears that without the blessings of our governments bitcoin can only be relegated mostly to black markets and online criminal enterprises.