Zimbabwean central bank bids to outlaw cryptocurrency trading

By on 18/06/2018
Cashless economy: shortages of hard currency are popularising cryptocurrencies in Zimbabwe. Image courtesy (DocTirivashe).

The Reserve Bank of Zimbabwe (RBZ) has announced that it plans to challenge a High Court ruling which blocks its attempt to ban trading in cryptocurrencies in the southern African nation.

The battle began on 15 May, when the bank gave financial establishments 60 days to end any relationships with the currency exchanges Styx24 and Golix – claiming that bitcoin is being used as a tool by money launderers and criminals.

In response Golix filed a High Court challenge on 24 May, and after RBZ representatives failed to offer a defence the court ruled in favour of the digital exchange platform. However, RBZ’s governor John Mangudya has now filed an affidavit in the High Court opposing Golix’s application to lift the ban on their company.

A spokesperson for the Bank said Golix’s “activities were not only unregulated and illegal, but presented all kinds of risk, including but not limited to fraud, money-laundering, evasion of the country’s exchange and terrorism financing.”

Going around the system

Jan Toporowsky, professor of economics and finance at SOAS University of London, says the RBZ is acting to prevent consumers, investors and businesses operating outside the formal financial system – which suffers from hyperinflation and restrictions on cash withdrawals.

Speaking to Global Government Forum he said: “The RBZ is attempting to boost foreign currency reserves, especially of US dollars, in advance of elections in July.

“The government knows that if it restricts bitcoin activity, reserves will increase – improving the likelihood of the country gaining foreign currency loans. The latter will ease expenditure and monetary restrictions, and boost the economy.”

The Professor said the introduction of capital controls to restrain the country’s hyper-inflation after 2009 has not worked, with many shunning bank deposits because they can only withdraw US$20 per day.

“In the current economic climate, cybercurrency has a better value than bond notes, and when they are sold internationally there is the opportunity to make a lot of money,” said Toporowsky. “This is contributing to the popularity of cybercurrency.”

Cash shortages

Yeukai Kusangaya, a trade coordinator at the Golix exchange, agrees that “interest in bitcoin has peaked because people cannot send money outside or pay for international transactions using formal banks.

“People have had to look for alternatives, and bitcoin has been a useful solution which can be used to purchase goods on Amazon or to pay for vehicles from international suppliers and traders.”

The southern African country adopted the use of multiple currencies in 2009, after its currency had been rendered worthless by hyperinflation. The US dollar has been the main transacting currency since 2009, but has been in short supply since 2015 due to low exports.

US$100 bills can reportedly trade at a premium price, and due to their liquidity are worth more than the dollars held in people’s bank accounts or the Zimbabwean ‘bond notes’.

About Glen Munro

Glen Munro has worked as a journalist for a wide variety of trade and consumer titles, including the Daily Express, the Independent and the Evening Standard. Topics he has covered during his career include business issues, personal finance, travel and African and Caribbean affairs.

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