The Sunday Mail
Persistence Gwanyanya
DESPITE the monetary and fiscal interventions that have been made so far to address the current cash crunch, the market is still grappling with shortages.
Arguably so, because the cash crisis in Zimbabwe is inextricably linked to structural challenges affecting the economy which, ordinarily, take time to address.
Admittedly, solving the country’s cash challenges cannot be achieved through a single policy measure.
Economists, therefore, cannot relent in suggesting possible solutions until the situation is fully addressed. And it is precisely for this reason that we have to explore the feasibility of using bitcoins to ease cash shortages.
Bitcoins, which are essentially a digital currency, are increasingly popular as a transactional solution worldwide largely because of discontent with fiat or paper money.
Whilst I acknowledge that there are fundamental challenges that could hinder the countrywide uptake of bitcoins, I believe this transactional platform could capture an important niche, especially young techies, if properly marketed.
As such, there is merit in promoting this transactional solution to ease the cash crunch. Bitcoin is an electronic payment system that enables parties to transact over the internet without involvement of a central authority such as a bank and even the central bank.
Like mobile money, bitcoin is a wallet-based monetary system which is operated on smartphones or computer gadgets.
This means bitcoin transactions do not represent traditional cash transaction. As such, they do not require a bank account but a bank application to operate.
Unlike fiat or paper money, which is institutional-based, bitcoin is a network-based currency.
This means that it is a peer-to-peer payment system which keeps transactions private and secure, with the use of highly sophisticated computers.
Historically, central banks have been trusted to issue money, whilst institutions such as banks have been trusted to be custodians of the same.
However, these entities are increasingly losing trust due to the part they played in global financial crises.
Likewise, in Zimbabwe it is difficult to distance policy makers and the banking system from the financial crisis, including hyperinflation.
This mistrust could be the sole reason why bond notes will not provide a permanent solution to the country’s cash crisis.
As the market gets increasingly rattled with the dominance of bond coins in the monetary system, its participants are most probably considering usage of digital currencies seriously.
The increased uptake of electronic and mobile money can ably support this assertion.
However, these two transaction solutions would be inadequate to address the needs of the market due to their limitations to make foreign payments.
This could be the main reason why black market activities could be difficult to control.
Thus, a currency solution which addresses foreign payment challenges is what the country needs most today.
This is why I suggest that the promotion of bitcoin, which is a completely global, border-less and decentralised form of money. With bitcoin, one can make or receive payments all over the world without restrictions.
This currency is becoming increasingly popular in advanced as well as developing countries. In these countries, bitcoin is easily exchanged for other national currencies.
Bitcoin has been around since 2009 and there are currently around US$12 billion worth of bitcoins in circulation.
Unlike fiat currencies, bitcoins preserve value due to well-managed supply enabled by a scientific formular used to produce (mine) this currency.
Currently, 12,5 new bitcoins are produced every 10 minutes and the number halves every year.
Using this formula, a total of 21 million bitcoins will ever be produced and it is expected that the last will come in 2140.
This is clearly one of the advantages of bitcoins over fiat or paper money, which can be manipulated or overprinted.
As such, the value of bitcoins is expected to exponentially increase due to the decrease in the rate of supply over time. In the first days of its trading, the price of a bitcoin was less than US$1 but it has since risen to above US$1 000.
Admittedly, the bitcoin concept is hard to understand, especially for technophobes.
However, it is likely to be well-received by a generation of techies who are the future of the world.
The history of the evolution of computers and how quickly they replaced typewriters, as well as the speed at which cellphones overtook fixed telephony, gives a quick glimpse of how technology advances.
Regrettably, whilst innovation was shaping the world, there has been less of its influence in currencies due to the conservative nature of banking.
However, growing discontent with fiat money is now forcing increased innovation in currency systems.
The current challenges relating to bond notes and foreign payment backlogs could be the major factors pushing Zimbabwe towards increased bitcoin usage.
Those who fear the return of the Zimbabwe dollar will be more comfortable with bitcoins.
Even our Diasporan colleagues would prefer sending money through the bitcoin platform than the formal banking system due to security concerns and challenges by beneficiaries in accessing money.
Remember, official Diaspora remittances declined in 2016, indicating there is something gravely wrong.
One key attraction of bitcoin is that it hides the identity of transacting parties and only those who are intended to see the transaction do so.
Investors would welcome use of bitcoins as they reduce exposure to currency risks whilst also enabling them to easily remit proceeds.
Given the abundant investment opportunities in Zimbabwe, a well perceived currency would help easily attract more investments.
Importantly, externalisation could be reduced by use of bitcoins as people become less worried about the future of the country’s currency.
Like what happened with mobile money, the success of bitcoin would result in financial institutions opening up to the possibility of being the host banks for bitcoin exchanges locally, which would mean that the local US dollar buying the bitcoins would not even need to leave our borders.
Bitcoin is not without its shortfalls and this is for future discussion.
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