Central bank chief Dr John Mangudya last week expressed the same kind of fears that every other global monetary authority before him has shown, a fear of the unknown: cryptocurrencies as a conduit for financial crime. And other such economic risks.
Bitcoin — the “posterboy” of the cryptocurrency revolution — tested $20 000 on world markets before Christmas (and $33 000 here), when two mainstream American exchanges introduced futures trading of the digital currency.
But Bitcoin’s often wild swings and crashes, sometimes a couple of times a day — the coin slumped to around $14 300 yesterday morning — has not endeared it with global financial gurus steeped in tradition.
From the US to France to China, cryptocurrencies have struggled to gain recognition with governing authorities.
So, in that sense, Dr Mangudya’s concerns are understandable. Only a handful of governments worldwide have backed digital currencies.
Also, there is no evidence the Reserve Bank of Zimbabwe (RBZ) has undertaken research on Bitcoin, to earn the authority’s support.
It is difficult, nonetheless, to see how the RBZ, or any other central bank, will stop the ground-breaking blockchain technology behind Bitcoin, and therefore, the currency itself — along with hundreds of its cousins — from breaking into the mainstream.
Mangudya’s concerns are grounded in the potential risks arising from digital money, such as driving “money laundering, terrorism, tax evasion and fraud”, even though no reports of like conduct have been made here.
And also the massive value gains in cryptos this year — a manifold increase to a global market value of $550 billion — dominated by Bitcoin, Ethereum, Ripple, Bitcoin Cash and Litecoin in that order.
Such quick turnarounds entice, and the unassuming investor is most at risk, drawn to putting money into an asset whose status as a commodity or currency as yet remains a matter of conjecture.
But there is no clear indication whether the rise of Bitcoin was big enough to rattle the Zimbabwean economy.
Roughly $2,5 million worth of trades are recorded each month on the local trading platform Golix.com, which is about 0,01 percent of the country’s GDP.
That compares with common shares on the Zimbabwe Stock Exchange, which as a percentage of the Gross Domestic Product, account for over 50 percent at current values.
Golix may not necessarily represent all the cryptocurrency trading taking place in Zimbabwe, but the exchange gives us an idea of how quickly virtual money is developing in the country, and perhaps, what to expect when cryptos enter the mainstream, as they are widely expected to.
Since Golix started trading in September 2015, trades have swelled from just a few dollars each day to tens of thousands of dollars today.
What’s the worst that could happen?
Unlike traditional currencies, Bitcoin is not issued by a central bank or government, with only 3 600 tokens created through a process called mining each day.
About 16 million Bitcoins are in circulation today, and only 21 million can ever be issued, a situation that has led some into predicting a growth of unhindered proportions for the digital currency.
Now, many governments, the control freaks they are, aren’t particularly thrilled at Bitcoin’s pronounced independence.
In South Korea, authorities have ordered banks to cut ties with digital currency exchanges, concerned what virtual money like Bitcoin could do to the financial system.
Also, because virtual currencies, on their own, are somewhat difficult to regulate. They are, as a matter of fact, built to resist such kind of manipulation by governments, or by anyone else.
But, as is the case in South Korea, central banks are now looking at other ways of effecting control: simply instructing banks, whose operations they regulate, to stop dealing in and with Bitcoin.
Mangudya, the Reserve Bank of Zimbabwe governor, has made no indication of taking similar drastic measures.
Though he has talked tough on digital currencies.
In a statement on December 21, he warned that people dealing in cryptocurrencies were doing so “at own risk and will not have legal protection from, or against, any regulatory authority.”
Herein lies the contradiction: whereas governments accuse cryptocurrencies of posing significant financial and economic risk, the same authorities now stand as the biggest threat to the development of virtual money.
Mangudya was careful to limit his warning on crypto investments to those willing to take the risk, or have already done so.
Never an indication of the RBZ’s intention to crack-down on local exchanges.
Indeed, he avoided mentioning Golix, the country’s only digital currency exchange, by name, even though the inference was all too clear.
We can expect the RBZ to step into the cryptocurrency space as a regulator in future, but current warnings speak more of the central bank’s cautious approach, careful not to stampede a revolutionary financial technology instrument that could change the way Zimbabwe does its business.
And while there is no shop known to accept Bitcoin as a means of payment here, a small number of Zimbabweans have become active trading in cryptocurrencies.
Some are using Bitcoin to pay for goods and services abroad.
Largely though, cryptos are now being looked at as an investment, buoyed by the 1 800 percent growth in the price of Bitcoin from the start of the year.
Pundits have dismissed Bitcoin as a bubble, similar to the one of the 1990s at the advent of the Internet. But others say the rise in its price is because it has now started to enter the financial mainstream.
Here, the worst that could happen to the cryptocurrency space is if the RBZ decided to become a bully, crippling operations by banning banks from dealing with digital currency exchanges, either directly or indirectly.
This would be a major blow to the development of virtual money in Zimbabwe, where Golix is working with two banks, CBZ and Steward, facilitating deposits and cash outs.
Any indirect arm-twisting of the exchange’s relationship with local banks will directly impact digital currency trading.
In a sense, this relationship debunks the popular belief that crypto-currencies, though disruptive, were truly independent of the traditional financial system, and neither do they represent a complete breakaway from government control.