Elisha Owusu Akyaw, a Ghanaian crypto-currency marketer, explained that young people are
interested in virtual currency because of the lack of jobs for school and university leavers. Elisha
explains that: « With the crypto-currency system, people can start their own business; people can
work for big companies outside their own country through crypto-currencies and earn a living,"
(Akyaw, 2018). In light of the opportunities offered by bitcoin, this essay will aim to analyze whether
bitcoin can replace the official currency in Zimbabwe. It will briefly introduce Bitcoin, its potentiality
to be a currency in light of the theoretical debate, and the economic situation in Zimbabwe. (1) Then,
It will start by looking at the inflation hedge potential of Bitcoin to be an alternative to the currency
in Zimbabwe. (2) It will show some of bitcoin's weaknesses to be a currency in Zimbabwe: the
volatility and the regulatory framework. (3) Finally, this essay will highlight the potential for bitcoin
as a trusted currency in Zimbabwe to enable the population's emancipation.
Introduction to Bitcoin in the case of Zimbabwe
Bitcoin, the leading cryptocurrency, is designed as a peer-to-peer payment system (see Nakamoto
2008). The project was born after the outbreak of the 2008 financial crisis (Nakamoto, 2009). Thus,
the growing global demand for fast and cheap transactions - bypassing banks - is one of the main
drivers of interest in alternative currencies in recent years. Another, of course, is pure speculation
(Harvey, 2015). Anyone with a mobile phone or an internet connection can make transactions quickly,
even for small amounts. This availability is essential for many people who do not have access to
banks, especially in developing countries(Harvey, 2015). As there is no central authority, and
therefore no central registry, bitcoin solves the critical problems of controlling the supply of new
bitcoins and verifying transactions through a 'mining' process(Gans 1-25). From a strictly economic
point of view, it is difficult not to think of the influence of the Austrian liberal current, which is
generally associated with the same discursive recurrences (ECB, 2012). Indeed, Hayek proposed a
free banking model based on competition between private currencies so that no central institution
(central bank or state) would be necessary for monetary stability. The self-regulation of the money
supply through the virtuous mechanisms of competition and the market would be sufficient to contain
disorders, particularly inflationary ones (Meikle, 1994). The concept of an economic structure based
on a diversified set of issuers and the absence of centralization (in the form of a central bank or a
single account) now seems to find a very concrete use with bitcoin.
It is interesting to see whether bitcoin can be considered as a currency. To do so, we need to analyze
the functions of money, which, according to Aristotle, are the following:
1. intermediary of exchange
2. unit of account
3. store of value
In the light of the above criteria, it can be said that bitcoin has some typical characteristics of a
currency. Indeed, the launch of the unit of account is accompanied by a set of rules and methods that
ensure the circulation and management of the unit of account (supply regulation), the smooth running
of transactions, and the respect of the fundamental principle of equivalence (in the
exchange)(Brunnermeier, 2019). In any case, the three functions attributed to money to define it are
convenient but insufficient to grasp the full complexity of bitcoin. This aspect has led some national
authorities to call it a digital asset rather than a currency. For now, suffice it to say that bitcoin is a
digital token that can be moved between parties, that the token has a market value in major national
currencies (the token can be exchanged for dollars, pounds, and other currencies), and that it is used
sporadically - albeit often in small quantities - in exchange for real-world goods and services.
Bitcoin has attracted much interest in Zimbabwe to free the currency from the imperfections of
institutional management, which has been denounced as inflationary. The southern African country
has been mired in a severe economic crisis for more than a decade, marked by hyperinflation triggered
by the poor economic management of former president Robert Mugabe, who was ousted in a military
coup in 2017(M.H, 2017). The hyperinflation peaked in 2020 with an inflation of 557.2% (IMF,
2021). This hyperinflation has led to the disappearance of the currency and the dollarisation of the
country. At the same time, in 2017, in Zimbabwe on the Harare bitcoin exchange, the price of bitcoin
jumped by more than 10% to $13,500, almost double the world price(Dzirurte, 2017). In December
2017, the Reserve Bank of Zimbabwe penalized virtual currencies in Zimbabwe (RBZ, 2017) to
address this interest in bitcoin, yet bitcoin continues to be used. Thus, the following sections aim to
understand whether bitcoin could emerge as an alternative to currency in Zimbabwe.
I. Bitcoin is an inflation hedge
A. Bitcoin is inherently non-inflationary
Bitcoin's main competitive advantage in becoming Zimbabwe's currency is its non-inflationary
capacity. Inflation results from a high budget deficit, which the government cannot finance other than
by creating money. This increase in the money supply leads to higher prices (McLeay, 2014;
Woodford, 2005). Inflation makes people's daily lives more complex as essential goods became
priced out of reach. A significant advantage of bitcoin is that its protocol, which provides a fixed
number of bitcoin units, makes it resistant to inflation (Plassaras, 2013). Indeed, unlike 'traditional'
fiat currencies where central banks create money in theoretically unlimited quantities, the total
number of bitcoins is limited and capped at 21 million. Claire Balva, president of Blockchain Partner,
explains that "the fact that there will never be more than 21 million bitcoins makes it a safe haven",
i.e., a value protected from inflation(De Canay, 2018). So, on 31 August 2020, there were 18.476
million bitcoins in circulation. They represented a total market value of $216 billion. Figure 1 shows
the evolution of the total number of tradable bitcoins and the market capitalization (MCAP, in
USD)(Baur & Dimpfl). The figure demonstrates that the market capitalization has an upward
tendency while the total number of bitcoins will flatten quickly. It is interesting to see how fast
bitcoins are mined to understand that bitcoin is ultimately non-inflationary.
To illustrate that bitcoin is non-inflationary and can be used as a currency in everyday life, it is
possible to use the example of Venezuela. Bitcoin is used as a stopgap measure in the face of the
falling value of the national currency in Venezuela - a good indicator for the establishment of bitcoin
in Zimbabwe. Bitcoin is used in Venezuela to purchase necessities. In June 2020, an agreement was
signed between Cryptobuyer and some companies(Martin, 2020). Cryptobuyer is a crypto-currency
exchange platform. This agreement allows signatory businesses to have terminals capable of
receiving direct payments in bitcoin(Martin, 2020). This system allows residents to avoid living in
fear of inflation. Bitcoin is therefore used as an everyday currency thanks to its non-inflationary
aspect as it offers a solution to people in hyper-inflationary countries. Thus, the limited and
predetermined supply of Bitcoin is an essential advantage for countries that can print more money
and redistribute wealth while causing inflation (Clegg, 2014), as is the case in Zimbabwe and
Venezuela. Bitcoin also allows people to protect themselves from inflation caused by political
instability.
B. Bitcoin is non-inflationary because it isolated from political volatility
Bitcoin is managed in a decentralized way by its users and protects people from the inflation caused
by political volatility. Researchers such as Khan and Saqib (2011) argue that political instability does
not allow for coherent policies. This inability decreases the government's resilience to economic
shocks resulting in macroeconomic imbalance characterized by volatile inflation. Bitcoin seems to
offer an alternative to the problem of money because of its decentralized nature. Indeed, Bitcoin's
distributed consensus mining process makes it a safe haven against inflation. Indeed, 51% of Bitcoin
miners must agree on any significant change to the system. It would be detrimental for individual
miners to devalue the currency to gain greater control, and the currency is therefore much less
susceptible to volatile governance (Clegg, 2014). The underlying concept of a decentralized public
ledger, collectively managed by a network of participants, is very important. It is, therefore, the
decentralized nature of the currency that protects it from rapid inflation Clegg (, 2014). This concept
inevitably evokes Hayek's (1976) famous proposal introduced earlier to achieve monetary stability
after the break-up of the Bretton Woods system, namely the abolition of the central banks' monopoly
of issuing banknotes and the transition to competition between private currencies. However, instead
of expecting a democratically governed state to optimize these market processes, fighting inflation
could be activated by replacing weak state institutions with technology, another form of political
'evasion' (Forbes 2015). Bitcoin's decentralized management model stabilizes governance and
prevents people from facing economic shocks such as inflation. Thus, Bitcoin would be an alternative
to Zimbabwe because of its ability to fight inflation through decentralized management.
However, this positive point is also one of the critical drawbacks of crypto-currencies for other
authors (FATF Report, 2014; European Central Bank, 2015). The reason is the lack of control and
supervision, as it exists for the financial system. According to the mentioned reports, virtual
currencies represent a potential risk of money laundering and terrorist financing due to the anonymity
of transactions and the that virtual currencies are decentralized. Decentralization is an obstacle to
finding a manager who can provide information on users. The impossibility of integrating systems to
detect money laundering and terrorist financing is a negative point.
We have shown in this section that bitcoin is insulated from political volatility, but bitcoin is not
insulated from volatility, which is a significant obstacle to its implementation as a currency.
II.However, Bitcoin still presents some disadvantages to replace Zimbabwean currency.
A. Bitcoin is too volatile
The biggest obstacle to bitcoin replacing currency in Zimbabwe - as in other countries - is its
volatility. The crypto-currency is only driven by the law of supply and demand, which makes it a very
volatile currency today(Houben, 2018). The volatility is a hindrance to daily use in Zimbabwe. The
population would see their budgets rise and then fall with the fear of financial instability always on
their doorstep through a process of gaping - market volatility can cause prices to move from one level
to another without actually passing through the intermediate level. Indeed, we find that bitcoin
markets are excessively volatile as the volatility is up to 10 times higher than that of exchange rates
(Baur & Dimpfl). Figure 2 shows that daily volatility is regularly around 10% and even reaches values
above 30% on some days. Volatility means that buying an asset valued at USD 1,000 can cost 10%
more or less (or USD 100) depending on the time of purchase, excluding transaction costs.
Understandably, such a high level of volatility is an obstacle for bitcoin to fulfill all the functions
associated with a currency (medium of exchange, unit of account, and store of value) reliably and
efficiently (Baur & Dimpfl). One of the reasons for the high volatility is that bitcoin is mainly used
for profit. By studying user behavior, Glaser et al. (2014) showed that users consider bitcoin more as
an investment medium than as an alternative payment and money transfer method. They explain that
users are not interested in bitcoin's technology, the possibility of buying goods, advantages such as
decentralization, or the possibility of anonymizing money transfers. For them, the volatility of the
bitcoin price, the possibility of investing, and making profits are the main factors. Thus, it seems that
bitcoin's high volatility and current application are a hindrance to the establishment of bitcoin as a
currency in Zimbabwe.
However, it is essential to note that this high volatility is primarily due to illiquidity, which is not
unexpected when the technology is so new (Harvey 2015). Since the crypto market does not yet have
"much" liquidity, it is sensitive to moves by large investors, called "whales." Thus, while our analysis
has so far identified excessive volatility in bitcoin that seems to reject its use as a store of value. The
long-term trend in the price of bitcoin is positive, as shown in Figure 8 for different price moving
averages; it can be argued that the price has not fallen over sufficiently long periods and that bitcoin
has store-of-value properties (Baur & Dimpfl). This is important because all fiat currencies lose their
value over time due to an overall inflationary movement.
In contrast, the value of Bitcoin over the last ten years has increased. In fact, over the same period,
Bitcoin is one of the best performing assets ever, which allows us to say that Bitcoin, when volatility
is reduced, will remain a reasonable reserve for valuers. However, volatility is not the only factor
holding back the establishment of bitcoin in Zimbabwe; it is also the legal framework for bitcoin
holding back its implementation.
B. Bitcoin needs a legal framework
Crypto-currency cannot yet take hold as a currency in Zimbabwe because the government does not
regulate it. The head of the Central Bank of Zimbabwe, Norman Mataruka, has asked financial
institutions to cease all services related to crypto-currencies. Mataruka, who said the decision applied
to both businesses and individuals, added that those affected should also take steps to liquidate
existing crypto-currency accounts. Still, demand for bitcoin remains strong from Zimbabweans. With
supply low compared to demand, trading occurs on the black market (Tawanda Kembo, CEO and
founder of cryptocurrency exchange Golix). The risk to investors is, therefore, more significant than
if bitcoin was regulated. In addition, the mobile money platform, EcoCash, the dominant payment
platform for bitcoin traders in the country, is booming. Individuals are willing to buy bitcoins at prices
higher than the global prices on other major exchanges to protect their savings from inflation and
capital controls. The payment option is to convert bitcoins through a linked bitcoin exchange. This is
equivalent to making a payment in a foreign currency converted into the local currency at the
transaction time. As a result, the conversion is usually costly and much more expensive than a direct
payment in bitcoins. Thus, crypto-currencies are a double-edged sword without regulation: they may
yield profits from time to time, but any sudden drop in their value may leave investors with no
alternative (Tymoigne, 2015). The only way to eliminate this risk would be for the country to adopt
bitcoin as its currency and limit the exchange of bitcoins for other currencies. However, Zimbabwe
does not seem to be committed to adopting bitcoin as its currency, as it would relinquish all control
over its money supply. The demand for bitcoin remains strong, suggesting that the government will
probably find a regulatory frame for bitcoin in the next few years.
III. Bitcoin is a reliable currency to enable the population's emancipation
In Zimbabwe, bitcoin, although volatile, has become a source of reliability compared to the national
currency. Unlike fiat currencies whose value is based solely on trust in the issuing state (Georgeson,
2018), bitcoin, through its blockchain technology, retains its value when trust is lost. This is not to
say that trust is rendered obsolete by the advent of the blockchain. Money will always be inextricably
linked to trust, whatever its form. However, this new currency reveals a firm belief that private actors
can efficiently perform the tasks usually assigned to fully decentralized institutions. Bitcoin seems to
be a winning bet in Zimbabwe because people trust it. Indeed, according to Bitcoin (Zimbabwe's
bitcoin exchange platform), demand for bitcoin (BTC) has "exploded." There is even an additional
premium of 18% to pay for BTC compared to the market price (Remy, 2020). This premium pay
shows that the virtual currency is growing much faster than elsewhere globally, demonstrating
Zimbabweans' interest in bitcoin. If Zimbabweans continue to invest in bitcoin even if it is illegal,
the benefits and confidence in bitcoin must be significant compared to the current currency.
For example, people trust bitcoin because it enables financial inclusion and therefore economic
development for the people of Zimbabwe. Indeed, today, about 30% of the Zimbabwean population
still lacks access to formal financial services (Tendayi, 2019). There is evidence that financial
inclusion could foster robust and sustainable economic growth in Zimbabwe. This is because financial
exclusion limits the development opportunities available to individuals. On the one hand, it is very
difficult for entrepreneurs in developing markets to expand their business nationally and
internationally, especially as transferring investor funds to Africa can be very costly, slow, and
complex. On the other hand, blockchain-based financial technology can provide financial services at
all levels of society (Clegg, 2014). For example, blockchain-based micro-payments can enable lowincome families to access clean energy through affordable virtual monthly payment solutions. Bitcoin
thus empowers people at different levels and mitigates the power and information asymmetries that
underpin inequality in Zimbabwe. Thus, by providing near-instant and reliable access to financial
services, bitcoin becomes a preferred alternative to traditional banking institutions. At the same time,
bitcoin could play a crucial role in helping to restore the trust of African people in their governments.
However, it should be borne in mind that bitcoin's volatility and lack of a legal framework are not
sufficiently appropriate for Zimbabwe. People use it for lack of a better currency but still need a more
stable and secure currency.
In conclusion, Bitcoin is considered a widespread currency in Zimbabwe. Zimbabwe is a country
experiencing hyperinflation due to poor institutional decisions. Thus, Bitcoin appears to be an
exciting way to fight inflation in Zimbabwe and provide economic stability. However, the current
volatility of bitcoin appears to be too great an obstacle to the implementation of bitcoin as a currency
in Zimbabwe today. Finally, we have considered that bitcoin may be the best alternative for the time
being, even if it is not the best solution given the above arguments. Thus, as bitcoin is a trusted
currency in Zimbabwe compared to the national currency, it helps maintain a necessary development
level in the country through financial inclusion. This essay provides an opportunity to reflect on the
possible uses of bitcoin for developing countries insofar as its use is regulated. However, Bitcoin does
not seem to be an alternative for countries with limited access to a mobile network, such as many
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