Stemming the flow of currency: How bitcoin is the answer to Zimbabwe’s Externalisation Challenge

Admittedly Zimbabwe is in a cash crisis. The Central Bank has reduced daily bank and ATM limits to $1000 but even that is too high for most banks. The banks are Some almost always have no cash at all and when they do, their setting their maximum withdrawal limit to as little as $50., cash withdrawal limits have been imposed by the Reserve Bank as well banks themselves ,people are failing to access their money, and the RBZ alleges that one of the main causes of this crisis is externalisation. Without doubt the problems in the Zimbabwean financial economy never take a time off. Just a few years ago we had unprecedented hyperinflation, we had people arrested on the basis that they were breaching Exchange Control Regulations and externalising funds from the country and again the externalisation monster like the proverbial hydra rears its ugly head again despite the fact that we had hoped its main head had been chopped off and for the umpteenth time the nation is at sixes and sevens.

For the first time we really appreciate what externalization means for the man on the street. All of a sudden we realize that when Mr Big Businessman decides that he would rather take all his sales receipts to another country it means our beloved Firimoni can't find the dollar to buy his chimonera. The effect of the mass movement of the cash meant injected into the economy by the RBZ is all too evident.

People are moving more money out of the country than they are receipting in Zimbabwe. Our Governor cannot even tell us how much has been lost to the economy due to this conduct, which for all intents and purposes is purely selfish and motivated by a self-preservation mentality. Lay as I am to the principles of money economics I hazard to suggest that the challenge facing our Central Bank is that it imports say USD10 000 for liquidation of the country's multi currency regime and barely a week later the economy has USD30 in circulation. One therefore wonders where all the USD9 970 has gone too.

The assessment of the Central Bank is that the country is losing money as people are taking out hard cash (musvo) and some payments due to companies here are being banked in off shore accounts and thus making the economy dry of currency and leading to the cash crisis. The Central Bank Governor has also sought to explain that we as a nation are over reliant on the US dollar, which negates the reason why we have a multi currency regime.

The three issues dogging the Central Bank as derived from the Governor's press statement in the Sunday Mail are:

1. We have a cash crisis there is just not enough hard cash in circulation, as well as the fact that
2. Citizens and investors in this country are moving tonnes of hard cash outside Zimbabwe.
3. At the same time we are not really receiving payments from outside Zimbabwe be it through remittances, or direct investment or payment for exports. Notably our exports are not significant when compared to imports but they are there.

We are thus in a fix and the solution proffered by the RBZ is to introduce measures that are drastic and nerve wrecking, but that notwithstanding they are meant to curtail the flow of currency out of Zimbabwe and ensure that the economy is sufficiently liquid by saying “ hello” to the bond notes. The question is whether this the only option available to the Central Bank , I say no! There is more they can do or supplement the interim measures they have taken and in the long run offer a lasting solution to the issues they are facing.

The ultimate equalizer and nutritional supplement to the interim measures they have adopted which can carry us in the years to come is the acceptance and promotion of crypto currencies or virtual currencies which are currently personified by bitcoins. Virtual currencies are a digital representation of value that can be digitally traded and function as a medium of exchange, a unit of account and/or a stored value, but do not have legal tender status in any jurisdiction.
Bitcoin has all the characteristics of money in that it is fungible, divisible to the eight decimal point as such it can work as a currency should we elect to use it as such. But there is more to it than being a currency the technology is blockchain based and as such there is the aspect of a very real option of it being traceable unlike cash as clearly evidenced by the challenge currently faced by the Zimbabwean authorities is to account for the total cash moved outside the borders.
How then will this technology be of use to Zimbabwe? The answer is that, it can be used as a means to regulate and ensure the flow of value out of Zimbabwe is regulated and at the same time ensure that the value moved out of Zimbabwe is exactly that bitcoins and not USD or any of the currencies currently legal tender in Zimbabwe. Why do I say that, Zimbabwe has a virtual currency exchange and with clear regulation the State through the RBZ can ensure that we stipulate that movements of a certain value say $10 000 and above can only be done through bitcoins and as such remittances outside that are needed by the nation be it personal or business do not directly affect the existence of hard currencies in the nation. This means the challenge currently faced is avoided, as to a certain marked extent the value of hard cash that the country wishes to have in circulation is not affected by the need to meet its export needs. Obviously exceptions should exist terms of applicability of the regulations but in principle there is a guiding financial and legal mechanism in place that ensures that we are not left with a country without hard cash in circulation due to an undue need to export hard currencies.
In the short to medium term the cash crisis will be averted. This assumes of course that we are dealing with a close to totally legitimate movement of hard currency out of Zimbabwe. In that regard I am in total agreement with the Governor in so far as he says that there is need for more forces to be brought to bear on such issues as the physical movement of cash, thus security and border control also have to play their part to stem the flight of currency to compliment whatever policies the Governor sets in place.
How will the bitcoins be able to act as intermediary is that through inter exchange business or dealing we can ensure that the value meant to be sent out of Zimbabwe reaches its intended target as the same, so to make a payment of $10 000 to South Africa a transaction initiated in Zimbabwe would be carried on the chain gang as bitcoin but received in South Africa as such and thus the hidden mystery key card is virtual currency and as such there is no movement of hard cash out of Zimbabwe and thus preserve economic liquidity.
Invariably by using bitcoins as an intermediary for remittances outside Zimbabwe the pressure on the USD is significantly reduced and as such the challenge we are facing as a nation is reduced and therefore not only will an additional or alternative currency introduced but also the demand for the USD is reduced.
There is also the unforeseen benefit of bitcoin being the point of sale for exporters. At this point Zimbabwe can take all the positives it can get as the horrors of 2008 still scare the country to the core. The RBZ has since adoption of the multi-currency regime been very vocal on the adoption or use of points of sale (PoS) and thus promoting the use of plastic money. This can be argued to be a clear policy position to discourage use of cash in the economy and so while this applies to the domestic sector it can in principle be taken in the external sector. The mainstream business and individual through using bitcoin will be non cash based and thus payments outside Zimbabwe will be reduced to the virtual /cyber space and thus reduce pressure on the hard cash requirements in the country. In that regard the same logic used to cause the adoption of plastic money in Zimbabwe so as to reduce the cash demand equally applies to external payments.
That notwithstanding there is also the issue of FDI and how bitcoin can just be the proverbial injection that this economy needs. The is an evident trend that in nations that have welcomed the existence of virtual currencies in their economies there has been positive injection of investor funds in companies operational in that space. Invariably tech start-ups and related companies will receive benefit and funding in the initial stages and this augurs well for the economy as there will be much needed FDI as tech companies in Zimbabwe will be receive funding. The excitement in venture capitalists will most likely be characterized by large capital inflows in tech companies in Zimbabwe and ergo the challenge of FDI is invariably solved in Zimbabwe.
Bitcoin in my view seems to deal with the three basic problems Zimbabwe is facing and so the logical route for Zimbabwe to follow in these dire times is the adoption of bitcoin.