How Cryptocurrency is Changing Zimbabwe
Facing extreme inflation in 2006, the Zimbabwe government phased out the national currency by 2009 to ease the situation. Although a new multi-currency system stabilized the economy, by relying on foreign currency the Zimbabwe government lost control of monetary policy. Unsustainable demand for different currencies also resulted in the creation of a new black market for foreign currency.
On June 24, however, President Emmerson Mnangawgwa reinstated the national currency and banned foreign currencies such as the US dollar, Britich pound, and South African rand. Residents of Zimbabwe are nervous about the new Zimbabwe dollar, later nicknamed “Zollars”, leading to a revival of interest in the cryptocurrency market as a way to circumvent the ban (CCN).
The cryptocurrency market in Zimbabwe has been one of Africa’s most active markets in the past decade due to unstable economies and frequent currency shortages. After the recent policy changes instated in Zimbabwe, even more investors have turned to cryptocurrency, which is considered more stable than the new Zimbabwe dollar. While free funds are still accessible, companies will have to exchange their foreign currency accounts for local currency. Due to the ban on foreign fiat currencies, services such as Paypal, Western Union, Moneybrookers, and Ecocash have surged in popularity for Bitcoin trades.
Because the Reserve Bank of Zimbabwe banned local banks from processing Bitcoin trades, there is a disparity between demand and supply for Bitcoin. As a result, much of the trading takes place on the dark markets. From the introduction of the ban on June 24th, the price of Bitcoin rose from $11,000 to as high as $76,000 on July 2 (Partz, 2019).
However, according to experts, the extreme markup for the bitcoin premium in Zimbabwe is not a reflection of a genuine growth. The sudden growth may be a reflection of the “black market rate” which has been rendered “worthless” by the government, according to EToro senior market analyst Mati Greenspan (Huillet, 2019).
The Zimbabwe situation seems to reflect the economic impact of monetary policy in other countries. In 2003, a similar ban on currency conversion occurred in Venezuela, followed by a surge in black market activity and “devaluation of the national currency” (CCN). In 2017, Venezuela, a country with one of the poorest economies, became one of the most popular Bitcoin markets. In Asia, anti-extradition bill protests pushed up the Bitcoin premium on Hong Kong’s “TideBit”, while government regulatory in South Korea has driven the “Kimchi Premium” for cryptocurrency in 2019 (Huillet, 2019).
While Zimbabwe Bitcoin prices have seemingly mellowed out, it is still one of the largest cryptocurrency markets in Africa. Around the world, Bitcoin continues to be a method for technology-savvy investors to hedge against unpopular government decisions in monetary policy.