Paper money is everywhere. It’s a fundamental part of daily life, from loose change and coins, to large transactions and purchases. Although bank cards and online shopping are becoming more commonplace, it’s hard to imagine a society functioning without any kind of physical currency changing hands.
For people living in Zimbabwe however, it’s not that hard to imagine.
Bitcoin is experiencing a moment in Zimbabwe: in October alone, the country’s crypto currency exchange Golix handled transactions of up to $USD 1 million. It’s a big jump, given that the exchange handled $100 000 worth of transactions for the whole of 2016. To figure out why Bitcoin is becoming more and more popular, it’s important to know about Zimbabwe’s latest economic crisis, centred around the circulation of banknotes.
Zimbabwe has suffered from three major economic downturns in the last 17 years. The first started in the late 1990s, and from this initial inflation hike, things quickly went from bad to worse. Economic rock bottom hit between 2008 and 2009. Inflation reached 213 000 000% . The country’s currency (the Zimbabwean dollar) crashed and burned in terms of value, ushering three phases of redomination. First it was traveller’s cheques, then bearer cheques, then agro cheques, all of which failed. The then Governor of the Reserve Bank (RBZ), Gideon Gono, had to “slash” zeroes off the currency (first three zeroes, then 10) in order for the value to actually fit on the printed notes. It didn’t help.
At the height of the crisis, the largest banknote in circulation was at the value of 100 trillion Zimbabwean dollars.
The introduction of the multi-currency system in 2009 brought some relief. Shelves were restocked. Prices went down. Although the economy was nowhere near fully functional, there was a sense of normalcy. That sense of normalcy halted with the introduction of bond notes in 2016. With an increasing shortage of US Dollars and South African Rands, the RBZ introduced bond notes as a solution. Instead of inspiring confidence, it sparked panic. The bond notes aren’t legal tender outside Zimbabwe, and promises that the value of 1 bond note was equal to 1 US Dollar evaporated as the bond notes rapidly devalued. Flashbacks to a valueless currency and massive queues for basic goods came back, and the little confidence left in banks plummeted. Daily withdrawals were initially limited to $50 per day. Then it dropped to $20 a day. Sending money outside the country and using your bank card outside Zimbabwe got harder and harder, when bank after bank limited money going out of the country. It was 2008 all over again.
Before the bond note crisis, discussions around crypto currency were for people in the know, not filtering into mainstream discourse. Now, with hard currency practically unavailable for private individuals, crypto currency began to look more and more appealing. Crypto currency was a better alternative than a non-currency whose value was steadily dropping.
Tinashe Jani is one of the people who has started trading in Bitcoin. He and his partner, Hillary Zuze, started Study263 on 10 September 2017. Jani, a Masters student at Rhodes University, is studying block-chain technology as part of his research in Information Systems. Zimbabwean students in South Africa have a next to impossible time getting money from home, and Jani saw an opportunity to combine his area of study with providing a service for students stuck in a foreign country with no money.
“When you start experiencing a problem and you’re stuck in a corner, you have to find a solution. For me, the solution was, “why don’t we start transferring money using Bitcoin?” Jani and Zuze had been trading in Bitcoin for months prior to the launch of their company, and using it as their crypto currency of choice was easy.
“It’s (Bitcoin) the most adopted crypto currency. The market cap right now is in billions, so it means it’s a more trusted currency. There are over a hundred crypto currencies on the market, but Bitcoin is the most valued. There’s a lot of trust and value in it.” For people living in a highly unstable economic environment, trust and value is key, explains Jani. Combined with the fact that there’s no need to go through a bank, and that transactions can take as little as 10 minutes, using crypto currency is an appealing avenue. No queues. No threat of inflation. No banknotes needed.
While it clearly has its benefits in a cash-strapped country (with some even putting Bitcoin forward as a replacement currency), is crypto currency the solution to Zimbabwe’s currency problems?
While the country has favorable conditions for Bitcoin to grow, Jani believes there’s still a long way to go until crypto currency becomes commonplace. “The fact that it uses different jargon from what people are used to is an issue. Even my own mother doesn’t know what crypto currency is and I’ve been studying it for years. The huge factor in people adopting this is them knowing about it.” There’s also technological access to consider. With Zimbabwe’s data penetration last registered at 50.1%, there’s the question of whether crypto currency will be able to help all Zimbabweans, or only those who can afford to access it.
Crypto currency may be an imperfect solution to Zimbabwe’s economic headache, but it’s been able to provide a vital service in a country where there’s less and less hard cash in circulation. It’s a decentralised structure that doesn’t rely on banks, a currency that isn’t affected the withdrawal limits and regulations, and a quick way to send and receive money beyond Zimbabwe’s borders.
With no solid solution or plan in sight to provide a stable hard currency, Bitcoin is a saving grace for citizens tired of a banking system that’s failed.
Source: UN Dispatch