HEATH MUCHENA: How crypto exchanges can bolster Zimbabwe’s economic revival

With the recent revocation of US economic sanctions against Zimbabwe a significant opportunity arises for the country’s financial services industry, especially in the domain of cryptocurrency exchanges. The US Office of Foreign Assets Control announced the removal of Zimbabwe sanctions regulations effective April 17, a landmark decision that opens new avenues for economic and technological development, particularly for digital assets. 

Zimbabwe’s economic history is marked by its notorious episode of hyperinflation, which peaked in the late 2000s, leading to the abandonment of its original currency. The Zimbabwean dollar became infamous for its worthlessness as prices doubled at an unprecedented rate. In response, Zimbabwe adopted a multicurrency system primarily reliant on the US dollar. However, the persistent shortages of hard currency and the need for economic sovereignty spurred the introduction of several new forms of local tender, none of which managed to restore full confidence among the populace.

The introduction of the Zimbabwe Gold (ZiG), a gold-backed currency, marks the sixth iteration of the local currency in an ongoing effort to stabilise the economy and restore trust in local monetary instruments. But despite the government’s initiatives the new ZiG currency is already facing challenges, particularly on the local black market where its value has been declining steadily. Such reports highlight the continuing struggle to establish a stable and credible fiat currency.

Nevertheless, Zimbabwean officials maintain a positive outlook, asserting that the currency is set to strengthen again and has a promising future. This scenario underscores the deep-seated scepticism among Zimbabweans towards local fiat currencies, born of years of economic instability and policy missteps. The scenario amplifies the appeal of alternative financial systems such as cryptocurrencies, which offer a more stable and globally recognised value system that could bypass the recurring issues associated with traditional fiat currencies. 

Zimbabwe, a nation long hindered by economic sanctions and shortages of universally accepted currencies such as the US dollar, now stands poised to harness the potential of cryptocurrencies. The scarcity of US dollars has propelled many Zimbabweans towards digital currencies as a viable alternative for international trade and e-commerce. 

The need for a robust cryptocurrency exchange platform is more pronounced than ever. With a large portion of the population already engaging in online purchases, the integration of a centralised crypto exchange could serve as a linchpin for economic revival. This platform would not only facilitate the buying and selling of cryptocurrencies using local payment methods such as Ecocash or Zipit, but also integrate seamlessly with global crypto markets, providing real-time data and transaction capabilities. 

Moreover, the success of major SA crypto exchanges such as VALR and Luno, which recently obtained crypto asset service provider licences from the Financial Sector Conduct Authority, illustrates a growing trend in the regional crypto ecosystem. These developments could serve as a model and catalyst for Zimbabwe, encouraging similar regulatory advancements and fostering a safe and thriving digital asset market. 

The proposed crypto exchange in Zimbabwe would ideally be built on a scalable layer 1 blockchain or, for example, an Ethereum layer 2 network, which allows for low-cost, rapid on-chain transactions. This platform could effectively democratise access to global currencies, with features allowing users to convert Zimbabwe’s new currency, the ZiG, into its US dollar equivalent and then into various cryptocurrencies. 

This centralised approach is likely to face less resistance than a decentralised marketplace. It would be deemed in alignment with the global trend since the most widely used platforms in many regions are still centralised. Approaching the market from this perspective could help avoid situations akin to what has transpired in the UK, for instance, where the Financial Conduct Authority introduced new financial regulations that present challenges for seasoned crypto users and has led to operational adjustments for exchanges and services.

Notably, Luno has limited its offerings for UK customers to withdrawals only, and PayPal has eliminated its crypto purchase feature. Meanwhile, companies such as Coinbase are now probing their customers more deeply about their investment intentions and knowledge. These developments occur as UK Prime Minister Rishi Sunak aspires to position the UK as a hub for crypto assets, a goal these stringent regulations may hinder. 

In Zimbabwe, the concept of cryptocurrencies is nascent among the general populace. Providing a user-friendly, regulated exchange could significantly enhance public trust and adoption, and the lifting of US sanctions against Zimbabwe represents a pivotal moment for its economic and digital transformation.

By establishing a regulated, centralised cryptocurrency exchange Zimbabwe can facilitate easier access to global markets, attract international investment and pioneer digital finance innovation in the African continent. The future of Zimbabwe’s economy could very well be digital, and with the right infrastructure and regulatory framework it is poised for a significant leap forward. 

The introduction of a cryptocurrency exchange in Zimbabwe presents a viable solution for the persistent challenges faced by businesses and citizens in engaging in global trade. Cryptocurrencies, by their nature, offer a decentralised and universally accepted means of transaction, free from the volatilities and instabilities associated with Zimbabwe's local fiat currencies.

For businesses this means an opportunity to bypass the restrictions and shortages of hard currency, enabling them to import goods, access international services and pay for essential machinery without the risk of currency depreciation or banking constraints. For citizens, cryptocurrencies provide a way to engage in e-commerce and remittances, fostering greater economic participation and financial inclusivity.

This digital financial infrastructure could significantly alleviate the economic isolation caused by years of hyperinflation and sanctions, paving the way for Zimbabwe to reintegrate into the global economy with a more stable and reliable medium of exchange. 

Crypto exchanges or infrastructure providers of digital asset marketplaces stand to gain significantly by entering an underserved market such as Zimbabwe. As a frontier market with a high demand for stable and accessible financial services, Zimbabwe offers a unique opportunity for growth and expansion. By establishing a presence in Zimbabwe, these providers can tap into a large pool of potential users who are eager for innovative financial solutions that circumvent the limitations of traditional banking systems.

The scarcity of reliable banking services and the widespread use of mobile technology create an ideal environment for digital asset platforms to flourish. Additionally, being early entrants into such a market can establish these providers as trusted leaders in the space, enabling them to shape the regulatory and operational landscape favourably.

This foothold would not only allow for immediate business growth but also set the stage for long-term strategic advantages in other similar emerging markets. 

• Muchena is founder of Proudly Associated and author of “Tokenized Trillions”, “DeFi Millionaire” and “Blockchain Applied”.