P2P bitcoin trade is surging in Zimbabwe via mobile exchange platforms like Ecocash, despite recent government efforts to curb the use of competing currencies locally. As of June 24, the reinstated Zimbabwe dollar (formerly RTGS dollar) is now the only recognized currency in the economically embattled southern African country. Finance minister Mthuli Ncube sees the move as a way to pull in the reins on re-dollarization, and implement greater controls and stability. Others see the new currency as a disastrous decision paving the way for continued hyperinflation.
Since abandoning the astronomically hyper-inflated Zimbabwe dollar in 2009, the Reserve Bank of Zimbabwe had switched to an international currency basket in an attempt to stabilize the economy. In February of this year, central bank chief John Mangudya announced the implementation of the RTGS (Real Time Gross Settlement) dollar, a new currency pitched as being at 1:1 parity with the USD.
Although the move to RTGS was ostensibly to provide greater balance to the economy, and restore Zimbabwean economic sovereignty, not everyone accepted this move as sound, or even as being well-intentioned.
Many Zimbabweans have significant savings and hedges in the form of U.S. dollars, and the sudden move was a severe economic blow. According to Zimbabwe opposition leader Nelson Chamisa:
The monetary policy statement is a disaster that will erode livelihoods, plunge the nation into darkness and uncertainty.
Zimbabwe Dollar: A New Version of an Old Currency
Now the RTGS dollar is old news, and as of late June, a revamped version of the Zimbabwe dollar has returned, effectively replacing and swallowing the RTGS. In a bold move by the central bank and government, local transactions in United States dollars, British pounds, and other currencies are now banned. Comprising the Zimbabwe dollar are coins, e-balances, the RTGS dollar, and bond notes which were first introduced in 2016.
In an official statement on June 24th finance minister Ncube verified:
The British pound, United States Dollar, South African rand, Botswana pula and any other foreign currency whatsoever shall no longer be legal tender alongside the Zimbabwe dollar in any transactions in Zimbabwe.
Speculation as to why officials made this decision varies, but there is a general consensus among local economists that the move’s aim is to stop re-dollarization of the economy, with some even claiming the clampdown is mostly political, and being done for other reasons. But the USD and other foreign currencies are not the only ones affected by the reboot. Bitcoin and other cryptocurrencies (having already been made illegal in 2017) are experiencing increased demand in view of the new policy.
Though settlement of local transactions with anything other than the new Zimbabwe dollar is illegal, P2P exchange of competing currencies is still possible thanks to popular trading platforms like Zimbabwean service Ecocash and localbitcoins.com.
Many news outlets ran with this idea and claimed earlier this month that bitcoin was trading for over $75K in Zimbabwe on popular trading platform localbitcoins.com. While a couple prices were in this range temporarily, the phenomenon was most likely a reflection of the now locally destroyed value of the USD. That said, in the absence of established, legal exchanges, the black market value of U.S. dollars remains lucrative and viable.
According to one local news agency, what has been observed in recent weeks is an attempt to liquidate USD via exchange for bitcoin. Utilizing channels like Paypal and Western Union, Zimbabweans are attempting to preserve as much value as possible in these volatile times.
Indeed, there seem to be practically two economies now: the one still tied to the USD as world reserve currency, and the newly imposed Zimbabwe dollar model. While black markets exist everywhere, in struggling economic contexts like this, alternative markets exert a much more profound influence.
Two Economies Side by Side
Prior to the reemergence of the “Zimdollar” and the RTGS, the government had introduced a system of bond notes and coins back in 2016, supposedly pegged to the USD. This plan failed as unemployment, lack of exports, and a shortage of physical cash created a lucrative black market where USD held greater value than the assets supposedly pegged to it.
Many economists and Zimbabwe residents alike are skeptical of the new financial policy, citing that a mere change in name does not denote real economic movement or progress. When one pizza can cost half the salary of a government teacher, that’s not surprising. Some are even declaring Ncube’s unilateral decree illegal. According to Harare-based lawyer Godfrey Mupanga:
Amending a principal legislation is a primary law-making power that can only be exercised by parliament.
This sudden move by the state which effectively creates a synthetic economy not tied to organic price signals could create new risks. The momentum being gained by black and gray market channels, as well as liquidation efforts via online payment platforms, is illustrative of the conflict.
Withdrawal of Foreign Currencies, Global Trend Toward Liquidity
At present, individuals may withdraw up to U.S. $1K per day in cash from foreign accounts in the country. Companies must request special permission if they wish to do so. According to Mangudya, business and individuals in Zimbabwe currently hold around $1.3B in these foreign accounts.
As liquidity gaps are filled by alternative currencies and markets worldwide, governments and their respective central banks continue unilateral economic regulation in efforts to stave off financial difficulties. Though some economists predict that the new Zimbabwe dollar will fail, others maintain that USD debt can be honored. The issue is, of course, which market’s rate will be chosen.
Zimbabwe’s new policy has continued to encourage market actors to secure value outside of official, state-sanctioned means. Globally, similar movements continue on a larger scale as certain national economies seek to move away from the U.S. dollar. Even in nations with relatively developed and established systems, individuals are seeking to hedge their bets via crypto and foreign money. This global, organic movement toward liquidity seems to be reflected in Zimbabwe, in spite of state regulation.
What are your views on the Reserve Bank of Zimbabwe’s decision to reinstitute the Zimbabwe dollar? Let us know in the comments section below.
Image credits: Shutterstock, Fair use
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Graham Smith is an American expat living in Japan, and the founder of Voluntary Japan—an initiative dedicated to spreading the philosophies of unschooling, individual self-ownership, and economic freedom in the land of the rising sun.