Money & Banking

Think bitcoin’s getting expensive? Try Zimbabwe

Reuters Harare | Updated on January 09, 2018 Published on November 13, 2017

As local dollar collapses, cryptocurrency zooms to $13,900 in Harare

For most investors around the world, bitcoin is a volatile and highly speculative bet. For Zimbabweans, however, the cryptocurrency seems to offer rare protection from the onset of hyperinflation and financial implosion.

Some are turning to bitcoin out of desperation as their bank deposits lose value almost by the day, while others are using the online currency for housekeeping such as funding family members studying abroad.

The result is startling. Bitcoin’s global surge to a record high of $7,888 last week — a sevenfold increase since the start of the year — has been spectacular enough. But on Harare’s bitcoin exchange, Golix (golix.io), the price hit $13,900, a 40-fold jump in the same period.

Warnings abound internationally that bitcoin may be a bubble waiting to burst. But the dire state of the Zimbabwean financial system under President Robert Mugabe is encouraging risk-taking.

The government adopted the US dollar in 2009 after a bout of hyperinflation rendered the Zimbabwean dollar worthless, wiping out savings in the now defunct national currency. After a period of relative stability, acute shortages of dollar cash have set in, leaving Zimbabweans with electronic units in their bank accounts which are officially called dollars but have a far lower — and rapidly decreasing — value.

In January, if they wanted to buy $100 in cash, they had to transfer $120 out of their account to a seller on the parallel market. Now the price is $180 in what are nicknamed “zollars”.

Nearly all domestic transactions are made via debit card or transfers using mobile phones. But some economists estimate inflation is more than 50 per cent a month in zollar terms, far from the official, dollar-calculated rate of 0.38 percent.

Zimbabweans are therefore piling into anything they think might retain value. Prices of cars, real estate and stocks have all soared, with the Harare bourse’s main industrial index doubling in the last two months.

For people like IT worker Arnold Manhizwa, a 34-year-old father of two, bitcoin is almost a safe-haven asset. He says he deposited $20 in bitcoin for his newly-born daughter a few months ago. Now it’s worth over $200. “If I put that money in a bank right now in Zimbabwe I will be left with nothing.”

Clear risks

Globally, the value of all cryptocurrencies is more than $170 billion and bitcoin, the biggest and best-known, has outperformed all traditional currencies every year since 2011, except for 2014. But many international investors still view it as an opaque instrument used by gun-runners and drug-dealers on the Dark Web that should be avoided. The risks are clear. After reaching the record peak, the international price of bitcoin slid over $1,000 in less than 48 hours last week. In Zimbabwe, the Golix exchange’s website showed at one point on Sunday that the price had tumbled below $11,000, a drop of around 8 per cent in 24 hours. But all this has to be compared with the zollar. “Many people view bitcoin, despite its volatile nature, as a better store of value,” said in-house Golix cryptocurrency analyst Taurai Chinyamakobvu.

In Zimbabwe, bitcoin’s attraction looks set to endure after Mugabe fired Vice-President Emmerson Mnangagwa last week. Mnangagwa had been given a mandate by Mugabe in 2015 to steer the economy and had backed former Finance Minister Patrick Chinamasa, who was trying to re-engage with foreign lenders such as the International Monetary Fund.

Foreign payments

Besides acting as an inflation hedge, bitcoin’s attraction to Zimbabweans lies in the difficulty of making foreign payments due to banks capping or halting transactions by Mastercard and Visa cards.

With bitcoin, Zimbabweans can bypass the need to seek foreign currency from the bank, and can even buy goods or services from the growing number of overseas merchants that accept the digital currency.

But it is a market from which foreigners are largely absent. Technically, overseas-based investors could buy bitcoin on the international market and sell them for almost twice the price in Zimbabwe. The snag is that payment will be in zollars.

One analyst who is setting up a bitcoin trading desk at a Harare bank acknowledged that the local price appeared attractive, but added: “Once foreigners sell their bitcoin, they won’t have a way of getting their money out.”

Published on November 13, 2017
This article is closed for comments.
Please Email the Editor