Cryptocurrencies, the solution in currency-deprived Zimbabwe?

If you want to finally read about a concrete use of cryptocurrencies.

To better understand why Golix, one of the main African crypto platform has a significant importance in Zimbabwe, it is key to understand Zimbabwe’s currency crisis. We have written a detailed and thorough explanation of its causes and consequences here.

This past summer, while in Zimbabwe, I had a meeting on the 17th floor of Joina City in Harare, the 4th tallest building of Zimbabwe, with Verengai Mabika, Co-Founder of Golix. In December 2014, along with Tawanda Kembo, he founded Golix, a cryptocurrency platform. This was well before the main cryptocurrency, Bitcoin, took off and peaked at ~US$20,000 in December 2017. In December 2014, Bitcoins were being traded at a mere ~US$320.

Golix is particularly relevant in the Zimbabwean market notably due to the high amount of remittances being sent into Zimbabwe.

The name given by the IMF to its webpage section about remittances is a relatively straightforward explanation: “Remittances: Funds for the Folks Back Home”. It is estimated that the remittances transferred by the Zimbabwean diaspora into Zimbabwe average $1 billion per year. As highlighted by NewsDay: “this figure only accounts for funds sent home through official banking channels, as such the figure may be less than 70% of the actual remittances into our nation as some funds are moved via non-traditional channels” . This amounts to at least 5.6% of Zimbabwean GDP, and is the second influx of foreign currency into Zimbabwe, just behind mineral exports. The Reserve Bank of Zimbabwe received in 2017, global foreign currency receipts, on a cash basis, that amounted to US$ 5.6 billion.

The main issue with remittances is their transfer costs. For example, if you were to send $200 from South Africa — where approximately 1M Zimbabweans live — to Zimbabwe, Money Transfer Operators (MTOs) such as Western Union charge as high as $15 of fee (7.5%). The alternative is to transfer the money directly through banks, yet the IMF estimates that transfer fees would amount to about 19.2%. On top of this, the processing time for these transactions is quite lengthy.

Lack of foreign currency

Zimbabwe has no real currency of its own. They have zollars consisting of mobile money and bond notes, both supposedly pegged to US dollars. When I visited in July 2018, the truth was that for 100 USD in greenbacks, the black-market offered an equivalency of 140 bond notes and up to 180$ in digital currency in your bank account or Ecocash wallet (the main Zimbabwean mobile money operator).

Moreover, the country has a negative trade balance. Given that Zimbabwe has very few foreign currency reserves, the country strictly allocates them through an established priority list of import demands. The four-tier list favors “Net Exporters who import raw materials or machinery to aide them to produce and generate more exports” (priority one), while disadvantaging “donations, importation of trinkets, low local content consumer goods and/ or goods readily available in Zimbabwe including non-commercial vehicles, maheu, bottled water, tomatoes, vegetables” (priority four).

Where does Golix come in?

Any members of the diaspora can now relatively easily buy Bitcoin with a credit card on platforms such as Coinbase. You can then transfer the bitcoins to your relatives in Zimbabwe. The transfer is almost instantaneous, efficient and cheaper than most other options. Your relatives in Zimbabwe can then sell those bitcoin on Golix for bond notes or a mobile money transfer.

In Western countries, cryptocurrencies have partly lost of their momentum notably due to their high volatility generated by speculation. However, in this case, the price at which Bitcoin is being traded does not really matters as the cryptocurrency is purely used as a token. In fact, the price of Bitcoin in Zimbabwe, on Golix, is often much higher than prices quoted on American platforms such as Coinbase. This is notably due to the value of zollars on the black-market (which are exchanged at a premium vs. USD) and a demand not always met by supply within Zimbabwe.

Who is buying Bitcoin in Zimbabwe?

Buyers are mainly companies that import products that are not on the priority list, such as second-hand cars, and need to get foreign currency (e.g. US dollars) to pay for these imports. Buying Bitcoin on Golix and paying with zollars enable them to then sell them back to foreign crypto-enthusiasts or the Zimbabwean diaspora in US dollars.

To recap let’s use a concrete example: take Tinashe, a Zimbabwean who immigrated to the US, Garikai his cousin living in Zimbabwe and Alvin who manages a second-hand car business but lacks foreign currency to import its goods (cars) from Japan. Tinashe sends over one Bitcoin to his cousin (remittance). He bought the coin on Coinbase and paid for it in USD. Garikai, receives the Bitcoin 10min to an hour later and directly sells it back for zollars on Golix in Zimbabwe. The buyer is Alvin who then sells it back on a Japanese crypto exchange for yens. In the end, Tinashe sent money cheaply and quickly to his cousin, Garikai received zollars, and Alvin got yens enabling him to buy cars for his business.

New beginnings?

Cryptocurrencies such as Bitcoin enable the citizen to circumvent forex regulators, in this case the Reserve Bank of Zimbabwe, and bypass altogether regular banks and regular money transfer methods.

In a country such as Zimbabwe where the government does not have its own currency, cryptocurrencies are more than an alternative and potentially a new beginning for economic stability and monetary sovereignty.

At the moment of publication Golix had momentarily stopped its operations in Zimbabwe due to a regulation put in place by the Reserve Bank of Zimbabwe, though this could change soon.

We travelled from Nairobi to Cape Town to meet social and tech innovators on the ground. The goal is to picture the underlying drivers of development.

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