With Robert Mugabe’s resignation as president of Zimbabwe comes the opportunity to do something truly special with the country’s economy that will essentially need to start from scratch.
The culmination of Mugabe’s regime, which lasted just shy of four decades, coincides with a wide adoption of cryptocurrencies like Bitcoin. At the time of writing this, one Bitcoin is worth over $8000, after an incredibly successful year for cryptocurrency. Despite the obvious stumbling block for the new leadership in Zimbabwe of a non-existent reserve bank (Zimbabwean dollars have been essentially worthless for a decade and the country uses US dollars as legal tender), the country can literally restart their money supply with a floating currency that’s value is rising astronomically. A progressive move like this would attract a lot of skepticism but could turn a failed economy into a rare African success story.
Looking at Zimbabwe’s economy, a combination of the abandonment of the Zimbabwe dollar and a government of national unity in 2009 resulted in a period of positive economic growth for the first time in a decade. The country has reserves of metallurgical-grade chromite. Other commercial mineral deposits include coal, asbestos, copper, nickel, gold, platinum and iron ore. However, Zimbabwe’s agriculture industry, which made up over one-fifth of the country’s GDP in 2012 and 60% of the labour force, is what truly makes the country a proverbial gold mine.
Zimbabwe is the largest grower of tobacco in Africa and the sixth largest in the world. However, international sanctions severely disrupted their agricultural industry after 2000 when white-owned farms were forcibly seized. This is because the new owners did not have land titles, which meant they didn’t have the necessary collateral to access bank loans and because the new farmers had no experience in commercial-scale agriculture. In agriculture alone, private investment is likely to skyrocket and the industry, which produced 217kgs of tobacco in 2014. In fact, tobacco sales have accounted for an estimated $300 million in the last year (a 30% increase from the previous year). With a literacy rate of over 90% in the country (credit to Mugabe for this), there is little doubt that Zimbabwe can turn out a highly skilled labour force in a matter of years.
I base my assertion on the international economic concept of the impossible trinity, which states that it is impossible to have a fixed foreign exchange, rate free capital movement and an independent monetary policy at the same time. Only one of the three policy positions existed for there to be a trade-off, a fixed foreign exchange. Zimbabwe now has a choice between free capital movement (which would allow for foreign investment) and independent monetary policy mechanisms (necessary to adapt to the incoming changes in the economy). However, if they abandon the US dollar as legal tender, they will have a floating currency while being able to adapt to the changes in the economy and to see an influx of investments. So, I believe that returning to a fiat currency (paper money) like the Zimbabwean dollar can only be a step backward or sideways. It would require a strict control of the money supply of a currency worth nothing, which would require the resuscitation of a reserve bank. Not to mention, the reduced transaction costs and time delays would make foreign investment a far easier process.
Adopting Bitcoin, on the other hand, leaves the monetary mechanisms in the hands of a decentralized authority, adapting to market forces, without an intermediary. Although current monetary systems are not characterised by fixed money supplies, it hasn’t always been the case. In fact, the introduction of floating exchange rates is what created the current monetary environment. Under the gold standard, which characterised certain periods of human history, the current monetary system which uses fiat currency is quite similar to Bitcoin in this regard. The very important difference is that, with the gold standard, you have a central bank determining the money supply, whilst under Bitcoin, it’s an algorithm. The promising benefits of a decentralised have been recognised by country’s like Singapore and Dubai already, who have adopted Blockchain-based initiatives in their stock markets.
This means that the monetary system will be determined by the investment into the country and the beauty is that Bitcoin’s value on a foreign exchange, like a stock market is likely to increase drastically in the foreseeable future. Many expect the market cap for Bitcoin to extend into the trillions over the next decade, while a single bitcoin could be worth as much as $500 000. Should Zimbabwe sell the US dollars currently circulating in their economy, they could find their unit of exchange dwarf any fiat currency. Focusing on the anticipated improvement of their agricultural sector, the country’s public debt of $11,6 billion could be completely eradicated in a matter of years, creating the platform for healthy economic growth.
I must emphasise that exponential growth is a real possibility if the new Zimbabwe is bold enough to take on such an initiative. The Zimbabwe that we dreamed of seeing in the early days of Mugabe’s regime in the 1980s could become a reality. Zimbabwe was once a shining example of diplomacy for post-independence African nations but 80% of the population currently falls below the poverty line. It was a country that proved economic growth could be championed without Western influence and adopting a decentralized currency will eliminate the possibility of influence from the West or despotic leaders.
Globalization has been the driving force for progress in the 21st century and adopting a decentralized digital currency could serve as a catalyst for Zimbabwe to become a leading economy not just in Africa, but the world.