Zimbabwe: Coups and Cryptocurrencies

Zimbabwe: Coups and Cryptocurrencies from STRATFOR via Financial Sense

As most of the world focuses on the political impact of Zimbabwe’s coup, a select group of analysts and technology watchers is scrutinizing the effects of the government upset on cryptocurrencies in developing nations. Directly after the Zimbabwean military took control of Harare and placed President Robert Mugabe under house arrest, the price of bitcoin on Zimbabwe’s sole exchange surged as demand for the currency spiked. The dynamic shows the value of cryptocurrencies in times of extreme political instability and portends a change in how Africa’s elites protect and move their assets, which could have myriad implications for the region’s economy.

After Mugabe and his wife, Grace, were placed under house arrest, several media outlets reported that the country’s sole cryptocurrency exchange, Golix, was experiencing higher-than-normal traffic and that bitcoins on the exchange were trading at nearly twice the rate to the dollar as in the rest of the world. Golix manages a minuscule portion of the total bitcoin traded through global exchanges and peer-to-peer exchanges. Moreover, as Quartz reported, Golix has low liquidity, which helped spike prices, and Zimbabwe’s peer-to-peer bitcoin prices have remained comparable to those on global trading markets. The value of buying cryptocurrencies through Golix rather than by other methods is that Golix accepts cash-to-bitcoin transactions in Zimbabwe while other methods are useful only for a purely digital transaction. These facts, however, are but a small part of the much bigger story of how bitcoin and other cryptocurrencies will fundamentally change how unstable markets operate in times of turmoil.

Africa is poised to become an important cryptocurrency market, though that market will lack much of the regulation and legitimacy that markets in more developed regions are gradually gaining. Convincing the central banks of African nations to adopt bitcoin or other cryptocurrencies will be an involved and lengthy process. Meanwhile, for unstable governments and people living under them, cryptocurrencies are an important and increasingly common way to move money across borders discreetly at no cost and with virtually no risk. Zimbabwe differs from other African countries in how dependent it is on the US dollar, but other African countries will increasingly take advantage of the technology in the future.

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