- Zimbabwe rolls out new currency but limits weekly withdrawals.
- Hyperinflation makes it difficult for Zimbabweans to trust their government.
- Bitcoin appears to be the perfect solution as it eliminates the need to trust an authority like the government.
In an effort to quell the effects of hyperinflation, Zimbabwe introduced the new generation Zimbabwe dollars. The Zimbabwean government, which plans to distribute one billion Zimbabwean dollars over the next six months, released the new currency on Tuesday.
Citizens lined up for hours outside banks to receive the new currency notes only to go home frustrated. According to Reuters, banks prohibited withdrawals of over 300 Zimbabwe dollars ($20) per week. In a country where inflation has hit 380%, 300 Zimbabwe dollars is not even enough to buy a bag of fertilizer.
Cash shortages, rising fuel costs and hyperinflation emphasize Zimbabwe’s desperate need for a currency that is immune to black market speculation and government influence. This comes at a time when Zimbabweans have moved to mobile money transactions. It appears that conditions are ideal for the entry of the most dominant cryptocurrency, bitcoin.
Hyperinflation and Loss of Trust in the Government
To say that the Zimbabwe’s government has mismanaged the nation’s fiscal policy would be a massive understatement. Over a decade ago, the country spiraled into one of the worst hyperinflation periods in recorded history. Hyperinflation reached its climax in November 2008 when inflation rate skyrocketed to 79.6 trillion percent.
The government had to give up the nation’s currency to combat hyperinflation. However, trust in public governance has been broken. Although the African nation tried to cope by using foreign currency, it never really recovered. Ten years later, it’s dealing with the same problem.
Writer and Zimbabwean L.S.M. Kabweza believes that bitcoin might be his country’s panacea. The writer concedes that the number one cryptocurrency is volatile but it appears to be a better alternative than any money controlled by the government. Kabweza wrote,
Bitcoin is notoriously volatile, but nowhere close to the unpredictable nature of Zimbabwe’s current government, perceived or real.
Describing Zimbabwe’s government as unpredictable would be accurate. The president, Emmerson Mnangagwa, more than doubled fuel prices to curb shortages. As a result, businesses had to increase prices to stay profitable. A cycle of hyperinflation ensued.
Fortunately, bitcoin can help alleviate this situation. Kabweza continued,
The more important thing,however, is that reliance on bitcoin helps with Zimbabwe’s trust problem.
The writer added,
A likely scenario that would result is that some people would begin to trust keeping their money in Bitcoin wallets than in bond notes that a government can theoretically print more of… if more people have their money stored in bitcoin wallets, businesses would see reason to start accepting these Bitcoin as payment which would increase liquidity.
Internet Penetration and Cash-Out Services Prepare Zimbabweans for Bitcoin Use
While dealing with the fallout of the 2008 hyperinflation, Zimbabweans adapted by using electronic cash and electronic transactions. Al-Jazeera reports that eight in ten transactions in the country are done on mobile platforms.
Unfortunately, electronic transactions don’t come cheap. Many cash-out agents charge premiums of up to 50% for use of their services. With little to no recourse, many Zimbabweans take the loss.
This further highlights the need for bitcoin. Bitcoinfees reports that an average BTC transaction costs between $0.44 to $0.57 depending on transaction speed. These numbers are significantly cheaper than what cash-out services charge.
It appears that bitcoin is the magic bullet that can solve many of the country’s problems. With the nation’s central bank rolling out a new currency, it might be the chance of many citizens to exit the fiat system and consider bitcoin as the alternative.
Disclaimer: The above should not be considered trading advice from CCN. The writer owns bitcoin and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading.