In the Bible, in Genesis Chapter 11, there is one of the most extraordinary stories that depicts the relationship between God and Man. In this story of the Tower of Babel; Babylonians discover a plain in Shinar and plan to “make a name for themselves” by building a mighty city and a tower with its top in the heavens. But when God came to see the city and the tower the people were building, he perceived their intentions and knew that this “stairway to heaven” would only lead the people away from him. To prevent this arrogance, God confuses and divides the people’s plan. In our view, this illustration reflects was has happened (or is happening) in Zimbabwe’s monetary system. In this case, God represents the monetary authorities or the Reserve Bank of Zimbabwe (RBZ) and the Babylonians are the Zimbabweans or transacting public. We are talking about the proponents of decentralised monetary systems that are advocating for the use of digital currencies such as Bitcoin, Ethereum, Libra and Litecoin. The latest development of course being ZIMBOCASH (The Second Tower of Babel).
Examples of Digital Currencies
The First Tower of Babel (Golix)
Before we look into ZIMBOCASH, we recall that Golix (The First Tower of Babel) was “scattered” by the RBZ (God) in 2018 when all banks in Zimbabwe were ordered not to be involved in any transactions involving cryptocurrencies. Golix was one of the fastest-growing cryptocurrency exchange platforms in Zimbabwe that had also introduced a Bitcoin ATM. The ban also halted its planned token sale to raise USD32.0m under an initial coin offering (ICO) aimed at generating funds to expand across Africa.
Shifting the Centre of Power
The idea behind decentralised monetary systems is that it shifts power from Central Banks to users of the digital currency. It involves creating a currency independent of any central authority and that is transferable electronically, more or less instantly, with very low transaction fees. The system is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain. Just like the story of the Tower of Babel, it involves people putting their destinies into their own hands. The risk here is a “god-less human kingdom which would displace and exclude the Kingdom of God”.
Illustration of the “Competing Towers”
Even the “Zuck Buck” is being shunned upon by Central Banks
Globally, most countries are shunning the use of digital currencies. We recall that in June 2019, Facebook announced Libra (the Zuck Buck), a new global payments system and currency, to be launched in 2020 that will be built around the scale of social platforms such as Facebook and WhatsApp. The plan is to employ technology underlying cryptocurrencies so as to shake up the world’s financial systems. However, Libra’s future appears to be “doomed” given that politicians and regulators around the world are making disapproving noises.
The Second Tower of Babel (ZIMBOCASH)
ZIMBOCASH is a new movement that has been launched and is championing a decentralised currency in Zimbabwe. According to its website, the new movement is a result of hyperinflation, skyrocketing prices and shortages that has been triggered excessive money printing.
Evolution of Broad Money Supply in Zimbabwe ($bn)
The promoters of ZIMBOCASH have embarked on extensive roadshows across Zimbabwe in a bid to lure adopters to this new digital currency. The group has 230 ambassadors spread throughout Zimbabwe and South Africa, with 13 ambassador leaders positioned in each of the major regions. Meanwhile, ZIMBOPAY is a separate company that has established with the goal to provide the full wallet and payment functionality. ZIMBOCASH will at a later stage be listed on an international cryptocurrency exchange where individuals will be able to sell to buyers. It has been reported that registrations on the ZIMBOCASH network are increasing significantly at an estimated rate of 50 and 200 a day as illustrated;
Total Registrations Since 2018
Why we think God (the RBZ) will come down and scatter the Second Tower of Babel
Piggy believes that the digital revolution is fast changing the way individuals, households and businesses are transacting and supports the innovation around digital currencies. However, Piggy also thinks the RBZ will continue to tighten its grip on the monetary system. This is demonstrated by a plethora of directives and Statutory Instruments that it has been pushing through in the market. Below is a timeline of some of the key events that have happened since 2016;
|28 November 2016||Introduction of bond notes||SI 133 of 2016|
|14 November 2017||The coup|
|01 October 2018||USD rates start to move||MPS 01 October 2018|
|22 October 2018||Introduction of Nostro accounts||SI 33 of 2019|
|22 February 2019||Introduction of Bureau de change and Interbank System||MPS 22 February 2019|
|24 June 2019||USD banned||SI 142 of 2019|
|20 September 2019||Limits for USD trading at bureau de changes put in place||Exchange Control Circular no.8 of 2019|
More recently, monetary authorities in Zimbabwe have vowed to defend the stability and value of the new Zimbabwe dollar (ZWL) so as to address concerns over its desirability as a store of value. This suggests more controls and only one centre of power in the form of the RBZ. This means that decentralised monetary systems may be a far-fetched idea in Zimbabwe at this point in time. Going back to our story of the Tower of Babel, the building project that the Babylonians had started working on symbolized the arrogance of humans who tried to be equal with God. In seeking to be free from reliance on God, the people thought they could reach heaven on their own terms and that was clearly unacceptable!
How can the RBZ restore trust and confidence?
Piggy maintains a strong view that the institutional design of the RBZ is important in order to boost confidence and restore a level of trust in the broader financial system. The following measures are key;
- Political Independence – Research has shown that Central Banks that plan for the long-term and do not focus on economic performance during election years are more likely to maintain a commitment to low inflation. It is very important for the RBZ to be independent from political control as an important way to reassure the public about the Bank’s credibility;
- Consequence for Bad Outcomes – There is need to introduce laws so that Central Bankers or monetary authorities in Zimbabwe take responsibility and are accountable when targets such as inflation levels are not met. This will help make the public believe the they will commit to a low inflation rate. Most modern Central Banks now have legally imposed inflation targets. For example, the Governor of the Bank of England must write a letter to the Chancellor explaining why targets are not met; and
- Effective Communication. Monetary authorities in Zimbabwe need to provide consistent forward guidance on major macroeconomic indicators, including the desired and expected path of interest rates, exchange rates and inflation.
In an environment where risks remain elevated, the exchange rate is deteriorating (on lack of trust and confidence) and there are inflation pressures, value preservation becomes key. While real assets such as property provide a good hedge, exposure using the local ZWL is non-existent. This means that the stock market becomes the most feasible avenue. Old Mutual Zimbabwe is one company that is considered a “blue chip asset-play and inflation hedge”. The stock remains a strategic holding for investors looking to gain exposure to a quality blue chip investment through its $5.5bn securities and property portfolio which offers an ongoing hedge against inflation whilst preserving value and earning consistent dividend streams.
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