We hazard a thought to the events that could have led to the Reserve Bank of Zimbabwe’s dramatic move on cryptocurrencies.
On May 11, Golix presented it’s case for a $35,8 million token sale, the RBZ turned it down, but the digital currency exchange insisted on going ahead with the Initial Coin Offering (ICO). And so, hardly 24 hours after the central bank directed commercial banks to cut ties with crypocurrency exchanges, Golix announced its ICO, in defiance of the ban, but only to suspend it 48 hours later after realising they were fighting a losing battle.
Eventually, Golix opted to engage further. This is just a thought, even though a statement by Golix on its Facebook page admitting to have acted rash — a post that has since been deleted — seems to lend credence to it.
But the rapid turn of events in the Zimbabwean cryptocurrency space over the past week suggests Golix’s multi-million — dollar token sale — and perhaps its defiance — was all the excuse RBZ Registrar of Banks Norman Mataruka ever needed to shut the door on cryptocurrencies.
The high level of risk involved in virtual currencies considered, as well the RBZ’s incapacity and a lack of know how to prevent such risks from becoming public catastrophes, Mr Mataruka may very well have been acting within the bounds of reason.
He makes a case for it: “As Monetary Authorities, the Reserve Bank is the custodian of public trust and has an obligation to safeguard the integrity of payment systems,” said Mr Mataruka, in a notice to banks last Friday.
Indeed, as used to represent the rest of the altcoins, Bitcoin’s often wild swings and crashes, sometimes a couple of times a day, has not endeared it with global financial gurus steeped in tradition.
From the US to China, South Korea to France, cryptocurrencies have struggled to gain recognition with governing authorities.
Only a handful of governments worldwide have backed digital currencies.
In that sense, Mr Mataruka’s ban is understandable.
But the man has never been a fan of digital currencies, and it only needed a spark to bring emotion into motion, of which Golix’s big-figure token sale seemed to provide.
In December, he thundered: “ . . . we will never allow this (cryptocurrencies) in our markets,” emphasising the point as SADC’s agreed common position.
So, it came as no surprise when on May 11 Mataruka made good on his promise and banned trading in virtual currencies.
Mr Mataruka understood that he did not have the power, or the legal backing, to shut down the exchanges themselves. Perhaps, only yet. Otherwise, he would have done so already.
Instead, he did that by proxy, influencing commercial banks, over whom the man has full control, to cut off support to people trading in cryptocurrencies and the platforms — Golix and Styx24 — facilitating such trades.
The full effect of the ban on local cryptocurrency trading is not lost on Mr Mataruka.
He knows without the support of commercial banks, digital currency exchanges will likely choke, as investors will not be able to send or receive money when they buy or sell cryptocurrencies.
It is a double blow, both to the exchanges, which make money from charging a fee on the buying or selling of coins, and to the development of the Zimbabwean virtual currency market, that depends on the existence of such exchanges to facilitate trade.
“Cryptocurrencies have strong linkages and interconnectedness with standard means of payments and trading applications and rely on much of the same institutional infrastructure that serves the overall financial system,” he told banks in the May 11 circular, highlighting the risks of any linkages to digital money, which until now, remains a financial wild west of sorts.
On his charge sheet, the Registrar of Banks accuses virtual currencies of endangering “financial stability” and of increasing the risks “of loss due to price volatility, theft or fraud, money laundering and other criminal activities”.
His claims are based on the actions of financial regulators from elsewhere, never the Reserve Bank’s own investigations.
It would be nice to have drastic RBZ measures backed by factual evidence of the bank’s own findings, specific to the Zimbabwean market.
But it is common cause that Bitcoin’s rapid gains in 2017 have enticed many, and the unassuming investor is most at risk, drawn to putting money into an asset whose status as a commodity or currency or security as yet remains a matter of conjecture.
Regardless, there is no clear indication whether the rise of Bitcoin was big enough to the Zimbabwean economy.
Roughly $650 000 worth of trades are recorded on Golix each month — at current prices — which is, what, under one 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.
We had long expected that the Reserve Bank of Zimbabwe would at some point step-in to enforce regulation in the cryptocurrency space, but not to cripple the sector all together, which is what Mr Mataruka has done.
In an economy critically short of foreign currency, digital money has helped Zimbabweans to pay for goods and services like university fees and health bills abroad easily. And those overseas to send money back home.
Last year, Golix processed about $1,8 million of such payments.
In Venezuela, authorities have gone as far as to create their own oil-backed cryptocurrency called Petro, in an effort to break economic sanctions, which have paralysed trade and international financial settlements.
But then again, Mr Mataruka, considered a risk management expert, is no stranger to intrigue.
Six years ago, four financial firms – Renaissance Merchant Bank, Royal Bank, Interfin Bank and Genesis Investment Bank — all collapsed under his watch, exposing severe banking supervisory shortcomings at the RBZ.
It is incredible that as he dropped the virtual currency bombshell, his boss Dr John Mangudya, the governor of the Reserve Bank of Zimbabwe, read from a slightly different script — a measured and cautious one.
“Any person who buys, sells, or otherwise transacts in cryptocurrencies, whether online, or otherwise, does so at their own risk and will have no recourse to the Reserve Bank or to any regulatory authority in the country,” Dr Mangudya cautioned, in a separate statement on May 11.
It was well within his mandate to shut the door on cryptocurrency trading here, but he did not. Instead, he preferred caution, saying the bank was keeping a close eye on developments elsewhere in Africa and beyond, to help inform local policy direction.
Clearly, Dr Mangudya let Mr Mataruka do the dirty work, hoping for a brilliant outcome.
It is incomprehensible that two powerful men, who represent similar interests for the same institution, will release two seemingly incongruous statements on the same issue, the same day.
As Golix, by no means representative of all the cryptocurrency trading taking place in Zimbabwe, but one that gives us an idea of how quickly virtual money is developing in the country, reported this week to be engaging the RBZ to consider it’s hardline stance on virtual currencies, we hope sanity prevails, and that technological innovation is allowed to flourish, to make a contribution to economic development.