The increasing reliance on Bitcoin, a cryptocurrency, by Zimbabweans, is disastrous, as the country is losing out on monetary policy interventions, which can be useful when the Reserve Bank has a currency it can control, a leading American academic has said.
A cryptocurrency is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency.
Bitcoin is a digital token, with no physical backing, that can be sent electronically from one user to another, anywhere in the world. All Bitcoin transactions are made with no middleman, meaning banks are not involved and therefore there are no transaction fees.
Zimbabwe is reeling from a severe liquidity crunch, with most businesses facing collapse, as they struggle to access foreign currency to import critical inputs due to depleted nostro balances. As a result, desperate Zimbabweans have resorted to using cryptocurrencies such as Bitcoin to make online and foreign payments.
African Leadership School for Business vice-dean for strategy and research and former professor at America's Harvard Business School, Catherine Duggan, recently warned that it is not economically viable for a country to rely on a cryptocurrency. She said if she was the central bank governor of a country relying on a cryptocurrency, like Zimbabwe, she would be extremely worried because it would mean that she is not able to control such a particular currency. Duggan was speaking at a workshop a fortnight ago, whose theme was "The Political Economy of Currency Movement; Factors Driving the Value of the Dollar and a Framework for Understanding the Intersection of Politics and Economics", which was organised by the British Council.
Currently, banks are prioritising the processing of telegraphic transfers based on the Reserve Bank of Zimbabwe's priority list, while Visa/Mastercard payments are also being controlled or culled altogether. This leaves Zimbabweans with few options on how to make external payments and, as the scarce United States dollar continues to disappear from the market, the demand for alternative payment options such as Bitcoin, is expected to increase.
On the US dollar, Duggan said the currency is overvalued in Zimbabwe.
"For a country like Zimbabwe, the US dollar is overvalued because it is valued the same as to how it is valued in the United States of America and yet the economies are totally different," Duggan said. The US is an economy doing well, whereas Zimbabwe has been going through an economic crisis for nearly two decades.
Duggan said people need to believe in their own currency and have confidence in it, but if that lacks, then the currency is reduced to just pieces of paper. "The US dollar is just a piece of paper, but the United States government and Americans have confidence in it and the reason why we use this currency is that we all agree that it is worth something," she said.
The bond note, whose value has been eroded by up to 60% in some instances against the US dollar, faced a crisis of confidence in the market even before it was introduced.