eBusiness Weekly
Jeffrey Gogo
The latest position of the IMF regarding cryptocurrency should be a wake-up call to the Reserve Bank of Zimbabwe (RBZ), which has stifled the local crypto-assets landscape. On November 14, Christine Lagarde, the managing director of the International Monetary Fund (IMF), urged central banks around the world to consider issuing digital currency to make transactions safer.
Speaking at a fintech conference in Singapore, Lagarde argued that state-backed cryptocurrencies could satisfy public policy goals related to financial inclusion, consumer protection, privacy and fraud prevention.
“I believe we should consider the possibility to issue digital currency,” Lagarde said in a speech at the conference.
“There may be a role for the state to supply money to the digital economy. The advantage is clear. Your payment would be immediate, safe, cheap and potentially semi-anonymous. And central banks would retain a sure footing in payments.”
However, in Zimbabwe the RBZ has completely amputated the Zimbabwean cryptocurrency industry. The actions of the central bank forced the country’s only two fiat-to-crypto trading platforms, Golix and Styx24, to virtually cease operations in May.
RBZ compelled commercial banks to close accounts belonging to the two exchanges, effectively cutting off their air supply. Thanks to the High Court intervention, the Reserve Bank of Zimbabwe had gone as far as directly shutting down the exchanges, but, as it were, it emerged the regulator didn’t have the legal power.
Many Zimbabweans that were trading cryptocurrency such as bitcoin, bitcoin cash, dash and ethereum on the Golix, which had 50 000 customers at the time of the ban, remain upaid to this day. The company has been frozen out of its bank accounts, which contain investor funds, on account of the back-door crypto ban.
Even though central bank governor John Mangudya has hinted of his attraction to the use of blockchain technology, which underpins cryptocurrency settlements, to process transactions, we have yet to see any tangible progress towards achieving the same from his office.
As a matter of fact, the governor recently turned down a proposal by a Zimbabwean company operating from the United Kingdom to test point-of-sale terminals that are backed by virtual currency. The proposal POS gave the RBZ an option to issue a state-backed digital currency on the device system.
Centralised trading platforms like Golix were perhaps one of the easiest way for the state to allow private companies to drive innovation that builds the economy while spreading cryptocurrency adoption, as the RBZ took an active role from a safe distance for learning and experimental purposes.
There was always a better way to handle digital currency as opposed to complete ban, a ban that has, nevertheless, been routinely and stubbornly trashed by social media platforms like Facebook and Whatsapp, where crypto trading continues to flourish peer-to-peer.
Paying attention to the I M F
We understand what makes financial regulators fretful over a new, untested technology (at least untested by the governments themselves). But it is also true that cashless transactions have soared around the world in recent years, unsettling many of the control freaks who work for various governments.
Bitcoin, for example, was created to challenge the conventional financial system and return the ownership of money to the people, beyond the reach of the state.
But this vision has not endeared it to global financial gurus who are steeped in tradition.
Unsurprisingly, many national governments have raised concerns about cryptocurrencies and have called for tighter regulation.
The RBZ will probably like to give Christine Lagarde’s message more attention. After all, it isn’t untrue that the IMF is held in high esteem at 80 Samora Machel Avenue.
Citing the example of central banks in Canada, China, Sweden and Uruguay, which are all “seriously considering” the introduction of their own digital currencies, Lagarde said a state-issued cryptocurrency would be a liability of the state, just like fiat money.
Such currencies could reduce the cost of transactions while maximising security and spreading adoption.
She stated: “The more people you serve, the cheaper and more useful the service. Private firms may under-invest in security to the extent they do not measure the full cost to society of a payment failure.”
Regulations may not be able to fully address these downsides, Lagarde said, but a digital currency could offer a number of advantages, particularly as a backup means of payment.
“And it could boost competition by offering a low-cost and efficient alternative — as did its grandfather, the old reliable paper note,” Lagarde said.
She added that although the case for virtual currencies “is not universal,” it should be investigated “seriously, carefully and creatively.”
In addition, central banks could offer a more level playing field for competition, leaving space for private companies to concentrate on innovation.
“Putting it another way, the central bank focuses on its comparative advantage — back-end settlement — and financial institutions and startups are free to focus on what they do best — client interface and innovation. This is public-private partnership at its best,” Lagarde claimed.
However, Lagarde’s calls for digital currencies sponsored by central banks are likely to be met with indignation by many cryptocurrency hardliners, who advocate the foundational principles of bitcoin.
They tend to see bitcoin as a currency that was built for freedom by resisting any form of control, especially that exerted by governments.
The involvement of a central bank could be viewed as intrusive, as it could mean that governments would impose unnecessary controls that might hinder transaction speeds, while sacrificing freedom and lower costs.
