By Calvin Manika
MANY countries in the third world countries are considering the use of digital currency as an alternative to the traditional hard currency countries have used for decades and some for centuries. Worldwide, countries including those in Africa, are struggling with how to regulate crypto currencies which have grown in popularity.
A number of emerging markets have banked on digital money to reduce transaction costs and improve participation in the formal financial system. Ghana and South Africa are the two countries in Africa testing digital forms of their legal tender to enable quicker and affordable money transactions without losing control over their monetary systems.
In June, Central American nation El Salvador became the first country to adopt bitcoin, a crypto currency as legal tender.
Zimbabweans have high hopes in the digital currency, citing that it can easy the flow of money and help in the economy recovery. Despite high hopes, economic analysts say Zimbabwe like any other country has potential but the current economic recession and the poor information technology communication infrastructure (ICTs) across the country needs to be addressed before implementation.
“There is need for research on the use of crypto currency. I think the findings will point to critical issues which must be in place, its infrastructure and a steady economy. Also, there is a need to encourage formalisation of businesses and everyone to have access to the internet. Without those things having a digital currency or crypto currency can be a dream,“ says Innocent Matashu, an investment consultant.
A crypto currency is a digital currency, which is an alternative form of payment created using encryption algorithms. The use of encryption technologies means that crypto currencies function both as a currency and as a virtual accounting system.
The currency is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. The most popular types of crypto currencies are Bitcoin, Litecoin, and Ethereum. Though relatively new, crypto currencies are increasingly popular alternatives for online payments.
However, market for these digital currencies is very volatile and raises fear among its users.
“Since crypto currencies don’t need banks or any other third party to regulate them; they tend to be uninsured and are hard to convert into a form of tangible currency (such as US dollars or euros.)
In addition, since crypto currencies are technology-based intangible assets, they can be hacked like any other intangible technology asset,” adds Matashu.
Digital currency needs a supported ICTs infrastructure which easily connects the banks, service providers and the people in the transaction chain. Electronic cash transfers have been a challenge in doing business due to poor or weak network in most parts of the country.
During Covid-19 Zimbabwe witnessed some non-governmental organisations which registered people in a platform called ‘Swifin’ to benefit money in a digital currency called Lumi.
Hundreds of people registered and are receiving money monthly but it has not been convertible to work in Zimbabwe.
The Swifin group has promised its members that they will be some designated shops which will accept the crypto currency.
Zimbabwe’s economic recession has eroded the value of savings and pensions over the past years, and a confusing stream of new currencies eroded faith in the banking sector.
People have resorted to crypto currencies despite of the associated risks.While other financial analysts think that, for Zimbabweans crypto currency is a way of safeguarding their money from government interference.
The Reserve Bank of Zimbabwe advised the nation that virtual currencies or crypto currencies such as Bitcoin and Litecoin do not have legal tender status in Zimbabwe.
This was a response to the increase of Ponzi schemes which trapped unsuspecting citizens in investing in crypto currency.
“The Reserve Bank of Zimbabwe has not authorised or licensed any person or entity or exchange for the issuance, sale, purchase, exchange or investment in any virtual currencies/coins/tokens in Zimbabwe. Exchanges such as Bitfinance (Private) Limited (Golix) and Styx24 are not licensed or regulated by the Reserve Bank. Virtual currencies are traded in exchange platforms that are unregulated, all over the world,” said RBZ in a statement.
The apex bank further explained that, the opacity and pseudonymous nature of virtual currencies presents regulatory concerns due to the potential risks to the public and financial stability.
“The nature of crypto currency transactions makes them the currency of choice for money launderers and other criminals, seriously undermining global efforts to combat money laundering and the financing of terrorism. Anonymity renders the transactions difficult for law enforcement agencies to trace. Crypto currencies can be used to facilitate tax evasion as well as externalisation of funds in violation of a country’s laws,” added the Bank.
As crypto currencies go mainstream, more countries are moving to regulate the market in order to wield some control over these assets without completely hindering innovation.
But, in Zimbabwe, experts say, prohibition has made it easier for scammers to proliferate.
“If the banking sector were allowed to get involved, they would have to meet certain requirements, but we need tech expertise,” says Poshai Choto, an economist.
Despite its risks, crypto currency has the potential to be a lifeline for people globally, either for receiving remittances from abroad or for securing savings amid acute local currency devaluation.
Minister of Information, Publicity and Broadcasting Services Monica Mutsvangwa said Zimbabwe has no plans of adopting crypto currency as a legal tender, and Zimbabwe has plans to introduce an e-currency.
“Our local currency is the Zimbabwe dollar, and not crypto currency. Like most countries in the world, the Government of Zimbabwe, through its Financial Technology Group, is studying Central Banking Digital Currency as opposed to crypto currencies,” Mutsvangwa said.
Meanwhile, Zimbabwe in July introduced the gold coins as a measure to restore value of the local currency, fight the parallel market and safe keeping of money. Announcing the introduction of gold coins, the Reserve Bank of Zimbabwe said the coins will normalise the economy.
The coins – Mosi-oa-Tunya have a liquid asset status. The central bank disbursed 2,000 coins to commercial banks.