THERE has been a craze for bitcoin over the last few months, with interest in the cryptocurrency being driven higher by the cash crisis in Zimbabwe.
Bill Gates, the ‘world’s richest man’ and Microsoft co-founder, three years ago, also described the bitcoin as ‘better than a currency’.
Bitcoin is a cryptocurrency and worldwide payment system.
It is the first decentralised digital currency, and the system works without a central repository or single administrator.
The network is peer-to-peer, and transactions take place between users directly through the use of cryptography, without an intermediary.
These transactions are verified by network nodes and recorded in a public distributed ledger called a block chain.
Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009.
The world’s crypto market cap stands at US$170 billion, with analysts predicting it to hit US$2 trillion in the coming years.
There has been a lot of international interest in how much bitcoin trades for in Zimbabwe, premiums reaching as high as 85 percent.
To use bitcoin, for either buying or selling, individuals have to first create a bitcoin wallet, where they intend to keep bitcoins.
Once the wallet has been created, the person proceeds to register on a crypto currency exchange or in the case of bitcoins, a ‘bitcoin exchange’.
On the exchange, a person must provide personal details similar to that of opening a bank account in order to start buying and selling.
Once the process has been approved, a person can start buying or selling and placing the bitcoins in the wallet.
In Zimbabwe, the most common bitcoin exchanges are Golix, Bitmari and Spectrocoin.
Golix was formerly Bitfundi under start-up company Bitfinance Zimbabwe.
Golix processed more than US$1 million of transactions in the past 30 days, compared with turnover of US$100 000 for the whole of 2016, according to data on the exchange’s website.
Bitcoin opened the year at US$1 000 and in eleven months this has grown to almost US$10 000.
The price of the crypto-currency in the country is as high as US$18 000, almost double the rate at which it trades in international markets of US$10 000, according to prices cited on Golix’s website.
Prices for bitcoin are set by supply and demand.
Over 100 000 online merchants and vendors accept bitcoin as payment.
Sellers are paid in US dollars deposited electronically, which can only be converted into hard cash at a steep discount on the black market.
While the bitcoin doubled, money trading parallel market in Zimbabwe scourged.
Days after the resignation of former President Robert Mugabe, the parallel market was first to signal the good times are on the horizon, with the bond note and plastic money firming against the green back.
A survey by Patriot Business this week showed that premiums on real time gross settlement (RTGS) had dropped from 80 percent to 40 percent in the previous week, on the parallel market.
The dropping premium was 20 percent on the dollar using bond notes.
For instance, US$100 was being sold for $120 bond notes, $140 RTGs and R100 was trading at $8,50 Bond notes.
In recent weeks, cash dealers returned to the streets in full force despite Statutory Instrument (SI) 122A of 2017 — Exchange Control (Amendment) Regulations 2017 (No 5) which criminalises the practice, attracting a 10-year jail term if one is found guilty.
Cash dealers were seen conducting their business opposite Holiday Inn, Eastgate Mall, CopaCabana and Roadport bus terminus in Harare.
A cash dealer operating at Roadport Bus Terminai said the movement in premiums were down following the inauguration of President Mnangagwa.
“Iii zvadhakwa sister kubva pakapinda new dispensation,” said one Fox.
High premiums for the dollar saw most prices go up as companies had to pass on the cost of procuring the US dollar to customers.
However, prices are yet to come down for most basic commodities such as rice, cooking oil, meat, fuel, cooking oil and shoe polish, among others.
Zimbabwe abandoned its own currency in 2009 amid hyperinflation that reached an annual rate of 231 million percent.
Since then, the country has relied on foreign currency, in particular, US dollars and the South African rand.
But for more than a year, even those currencies have been scarce, making it hard for Zimbabweans to purchase the most basic necessities.
The underlying causes of the parallel market proliferation need to be interrogated and addressed.
People are optimistic the liquidity challenge will be addressed forthwith.
The ascendancy of President Emmerson Mnangagwa has brought with it optimism in the business community, who view the former Vice-President as pro-business.
The euphoria that has gripped the nation has certainly raised hope that the future is bright.
In his inaugural address, President Mnangagwa promised that Zimbabweans would soon be able to access their earnings.
“In the immediate, the liquidity challenges which have bedevilled the economy must be tackled head-on and must be dealt with as a matter of urgency,” he said.
“People must be able to access their earnings as and when they need them.”
President Mnangagwa said the Government would ensure a financial sector stability which promotes a savings culture.
“My Government will ensure financial sector stability and viability and will put in place measures that promote deposits and savings through bank deposits and other appropriate financial instruments which bring fair rewards to depositors,” he said.
“The current banking culture where costs are levied on depositors must come to an end.”
Analysts opine that in the long-term, Zimbabwe needs to have its own currency.
Using the US dollar was necessary after the old Zim dollar became worthless than the paper it was printed on and it subsequently met its demise.
But there is so much more to creating a viable currency than switching on a printing press.
Confidence is key.
Last year, the Reserve Bank of Zimbabwe introduced Bond notes which were meant to alleviate the chronic shortage of US dollars in the system (along with all the other currencies in the multi-currency basket).
However, many thought this was an attempt to re-introduce the Zim dollar via the back door.
In fact, the Bond notes have done little to address the cash shortage and some analysts argue they (Bond notes) might have actually made the situation worse by pushing up the demand for US dollars even further.