Another compelling case for crypto-currencies

Globalization has made trade across borders easier while the emergence of companies like Amazon and Alibaba makes it possible for many to buy what they desire and when they want to. With just a few clicks, you can buy the latest IPhone or that special wedding gown, which will be delivered right to your doorstep.

While this is very true for many in Western countries, that is not necessarily the case in the developing world. The global financial system recognizes a few currencies, that it is, the US dollar, Euro, Yen, Yuan, Pound Sterling etc. In fact, global trade is anchored on these currencies because everyone along the chain expects to be paid in those currencies.

So for someone from the Central African Republic or Nepal who wants to buy anything from Amazon, they have to go through some process of changing their money to one of the accepted currencies, although the US dollar is preferred in many cases. This can be done either by an actual visit to a Bureau de Change or bank to convert the local currency into the US dollar, or simply transferring money from a normal bank account into a Visa or Mastercard account.

Either way, there are some costs involved, this means any customer from the two countries incurs an extra cost—commission fee for the exchange service—in addition to the usual costs like freight and customs clearance.

The commission fee charged increases, if the currency that needs to be exchanged is deemed volatile, which is the case with most currencies from developing countries. In extreme cases, Bureau de Changes or banks, will refuse to accept or deal with a rapidly depreciating currency while those using Visa or Mastercard will be asked to deposit in US dollars or any other hard currency.

To further explain this, prospective Amazon or Alibaba customers from Zimbabwe—where the local currency is not readily accepted outside the country—will have to source hard currency on the black market because of ongoing foreign currency shortages. Black market exchange rates are very volatile hence the foreign currency sourced from that market comes with a significant risk premium.

After getting the foreign currency, customers then have to deposit the money into Visa or Mastercard account where transaction fees are inevitable. At the end of the process, a Zimbabwean customer pays more for a particular product than what their German or American counterpart pay for the same product.

 It gets more ridiculous, a Zimbabwean importer of popular plastic shoes (sandak) made in Malawi, is asked to pay in US dollars by the Malawian manufacturer. Apparently, Malawi’s kwacha currency is also volatile just like Zimbabwe’s bond-note currency, consequently Malawian traders demand the stable US dollars to protect their revenues from the volatile currencies.

Similarly trade between Zimbabwe and Zambia business people is afflicted by the same challenges. Zambia’s own kwacha exhibits similar volatility, so naturally, Zambian traders demand US dollars from Zimbabweans as payment.  Zambian traders also pay in US dollars when buying in Zimbabwe because the kwacha is hardly recognized in Harare.

So in nutshell, the three Southern African countries do not trust each other’s currencies and it takes the US dollar—a borderless currency—to  enable transactions. Therefore, while central banks chiefs like to peddle the notion that their institutions infuse confidence into financial markets, the situation explained above paints a different picture. Malawians do not trust their own currency as do Zimbabweans in spite of the two countries having functioning central banks.

Inventors of Bitcoin may have not thought much about the plight of these Southern Africa countries when they created the crypto-currency, however, it is true that the innovation promises a unique solution to this deep-seated problem of currency mistrust.

It is quite illogical, for countries that are connected in almost every other way to have such trade challenges, which stem from the national currencies and imaginary borders. In other words, regional trade should not be curtailed by national currencies that are ever losing value.

This is where crypto-currencies like Bitcoin, Etherium or Litecoin, which are also borderless, can potentially come to the rescue of these Southern African countries. As crypto-currencies gain a foothold in global trade, the lack of confidence stemming from volatile national currencies that currently beset trade across borders, will be eliminated, if trading parties switch to digital currencies.

Bitcoin is the same everywhere, it is like a precious metal, the value is the same everywhere you go. Crypto-currencies have been in existence for almost a decade now yet their adoption remains slow owing to a number of factors.

While the earlier illustration makes a clear case for the wide adoption of crypto-currencies, not everyone shares the same sentiments about Bitcoin or crypto-currencies in general. Actually there is an ongoing effort to stifle their growth because of fear of change or disruption this might cause to their businesses or to their institutions. 

Crypto-currencies are blamed for aiding terrorists, a tool for money launderers and tax evaders. Apparently the volatility of the Bitcoin is enough evidence to prove that crypto-currencies cannot and should not be allowed to at least compete with national currencies.

Of course, this line of thought is no different from that of those who believe, building a wall to stop immigrants from entering a country, is akin to fighting terrorism. They conveniently forget that the same immigrants and their descendants have contributed more to their country.

Unfortunately, fear mongering is a tool that is widely used by less intelligent people and bullies to canvas support for their agenda. And when there are enough gullible people buying into the propaganda, those spreading fear will succeed albeit, temporarily.

Abuse of the technology by some cannot justify denying an entire people from using Bitcoin to settle payments. Bitcoin cannot be the reason why terrorists are there in the first place, even if this digital currency was to somehow disappear tomorrow, terrorists will still be there. In any case, money launderers and terrorists also use cash issued by central banks to pay for whatever they need because it is hard to trace.

A kitchen knife is an essential utensil in any home, but if someone with evil intentions uses it to hurt others, we do not blame the knife but the one committing the misdeed.

So these attempts to soil Bitcoin or crypto-currencies will not work in the long term. What is advisable is for governmental authorities to study digital currencies and make policies that allow the further improvement of this technology not to stifle it.

 Already a few countries are moving in that direction giving them an advantage over those resorting to heavy handed tactics. The future is for the brave.

Terence Zimwara is a writer/analyst based in Zimbabwe. You can contact him on 00263 771799901 or tem2ra@gmail.com, follow him on Facebook and twitter #temra

US congress’ influence on Zim economic revival

The budget process has come and gone, yet there is nothing concrete contained in the statement to suggest an economic turnaround is around the corner. Sifting through the budget document, one gets an impression that government, the finance minister to be precise, is trying to railroad reforms that the previous government found unpalatable.

The budget statement contains phrases like respect of the rule of law, property rights, freedom of association etc. Times have really moved, one can be forgiven for thinking that this budget statement borrowed a few lines from an opposition or civil society position paper. 

Previously, government never gave weight to these issues yet in this budget, they appear to be central to Finance Minister Mthuli Ncube’s strategy of rescuing the economy. 

Incidentally, the same points have been the longstanding demands of the European Union, the United States and their allies. Zimbabwe must be seen to be conforming to these if it is to be welcomed back into the international fold. The United States has gone as far as to promulgate a sanctions law, ZIDERA, which calls on the government to implement a series of reforms, before it can get access to funding from financial institutions that it controls or influences.

It is this law that stands out as one obstacle that minister Ncube is attempting to deal with through his statements on the reforms, which are also comprehensively outlined in the budget statement. Sadly for Ncube, it is not going to be local Zimbabweans who will certify if the prescribed reforms have achieved the intended objectives, a group of American lawmakers will have the final say.

The US congress which shares foreign policy control with the White House, will be the final and the crucial arbiter of Zimbabwe’s progress with respect to the prescribed reforms.

Perhaps that is why Professor Ncube completely ignored the currency reforms issue when he presented his budget, maybe he understood that anything else he does now will only work temporarily. In fact, the success of everything from TSP to the so-called Vision 2030, will depend in part on how quickly Ncube eases US government concerns.

If Americans are satisfied (and thats a big IF), that would be the green-light most would-be investors and financiers will need to start engaging Zimbabwe productively.

Until now, the threat posed by the Office of Foreign Assets Control (OFAC) has meant that not even Zimbabwe’s so-called friends are willing to commit anything tangible. There is no financial bailout coming because the process of lending money to Zimbabwe would entail using the financial system that is essentially controlled by the US government. The only way to circumvent this threat would be to use another currency but this has hardly worked.

 The US treasury department, under which OFAC falls, is known to punish financial institutions and businesses including non-US institutions for violating its financial restrictions policies. For example, South Africa’s MTN was hit with a heavy penalty for violating US sanctions against Iran a few years ago. The renewed sanctions against Iran mean MTN faces another threat of OFAC penalties if it tries to repatriate dividends from its operations in that country.

Such is the overreach of OFAC which gives the US government unmatched hegemonic power. In fact, when Commerzbank of Germany decided to stop clearing Zimbabwe transactions, it was understood that this was motivated by the threat of OFAC sanctions. 

Similarly when Barclays Bank of United Kingdom decided to separate Zimbabwe operations from the rest of its portfolio, this was also seen in the context of US sanctions. When international companies are forced to choose doing business with Zimbabwe and carry a sanctions risk or to completely pullout, many will choose the latter.

Professor Ncube seems to recognize this hence his repeated emphasis on reforms that might potentially create better prospects for the economy. He is not overly worried about how ordinary Zimbabweans are reacting to his budget or events thereafter, he believes that if the country successfully reforms, money will flow, he will get the bailout he wants.

However, the only problem with US sanctions law is that such laws are notoriously difficult to repeal. Cuban sanctions have remained in place for more than 50 years even as officials in the US agree that they no longer serve the initial purpose. The divisive nature of American politics means getting a consensus for the repeal of laws will prove difficult. Former US President Barack Obama attempted to remove sanctions but this was rebuffed by congress.

Nelson Mandela was on terrorist watch-list until 2008 when the US congress finally acted to have the name removed. This was some 14 years after the end of Apartheid and 9 years after he left the South Africa presidency. This is problem that comes with being sanctioned by the US in the first place, getting off the sanctions list is very difficult. 

Zimbabwe could well undertake all the reforms needed to pass the US congress test, but deep divisions between American politicians who are far removed from the realities on ground, might result in an outcome which does not serve the interests of Zimbabwe.

In the next few years, Professor Ncube and the rest of Zimbabwe will learn if the US congress is going to act differently this time, provided of course reforms are carried out. As finance minister Ncube has said, these reforms are necessary for Zimbabweans themselves without having to wait for outsiders to point this out. In that context, minister Ncube might have to tamper his optimism that once his prescribed reforms are complete, manna will fall from heaven.

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Bitcoin a mirror a reflection of problems with status quo

The recent slide of Bitcoin value after peaking earlier this year as well as the on-going concerns about lack of regulation plus the obvious problems that come from decentralized system, has given more amour to those hostile to crypto-currencies.

However, the problem with critics of crypto-currencies is that they miss the whole point of Blockchain technology or at least, they don’t appreciate the unintended benefits it has had on long marginalized communities.

This innovation has survived and will survive one way or the other because it serves a need, period! In the developing world, we have lived in societies where we have had these regulators but worse things have happened right under their watch. In fact, there is evidence that those entrusted with the job to protect ordinary people actually initiated the acts that ultimately destroyed livelihoods, savings and pensions for instance.

So when we see the same institutions rushing to condemn an innovative product just because it threatens their power or position, then we can only conclude that crypto-currencies are the only way to go. Naturally, Bitcoin and Blockchain technology are still mystical subjects in many parts of the developing world, we are almost always the last ones to adopt new technologies but when they are eventually widely understood, you can be assured of major disruptions.

To illustrate, a few years ago, a mobile phone company in Zimbabwe, Econet Wireless introduced a money transfer business, Ecocash. When it started, there was obvious skepticism because people did not know or have enough information but after a few years of taking it in, the rate of people registering to this transfer service increased exponentially. It did not take longer before conventional banks began to murmur about the disruption this service was causing to their operations.

Banks had pretty much operated like a cartel, they all charge exorbitant fees and in spite lobbying efforts to have these lowered, nothing much has changed. A significant portion of banks’ incomes still comes from fees and other bank charges, and this has long been a key reason why significant amounts cash remain outside the banking system. Ecoacsh threatened or stopped further growth of this income stream, suddenly the company faced hostility from everywhere.

In addition, the same concerns about regulation were raised because Econet Wireless, had suddenly become one of the biggest players in the financial services industry, yet it was not regulated by the central bank. Hostile banks went to the extent of blocking their clients from linking or transferring money from bank accounts to the mobile service, even as customers demand this.

A few years later, banks have essentially capitulated, the Ecocash service remains strong and one of the reasons is because it has brought financial inclusion to millions who were previously excluded from accessing financial services. More importantly, the fees incurred for using the service are relatively small and are only levied when one initiates a transaction. This is very much unlike local banks that deduct service fees every month irrespective of whether a client performed a transaction or not.

Obviously there are a few problems with the service but the fact that this service remains popular is testament that this innovation has become an integral part of ordinary folks’ lives. The only way to address the problems that may be inherent with Ecocash is a by creating another innovative product, not restraining or banning it.

So when we hear of a new technology that promises even better benefits—including curtailing the out of control central bank system—then we naturally welcome such an innovation.

This is what most global financial elites do not get, these technologies give a voice to those often ignored by the present system. We may not know how the Bitcoin story is going to pan out, but we are certain that if the problems that led to its rise are not addressed, then the central bankers and those attempting to stifle this novel technology can be assured, it will remain in place or better still, a much cooler innovation will emerge.

In fact, the concerted effort by the suddenly now benign billionaires and monetary authorities to discredit crypto-currencies may have the opposite effect, it raises suspicion about their true intentions. Those responsible for the 2008 financial meltdown cannot really claim to know what is best for those in Iceland, Egypt or South Africa who were affected by that recession even though it (recession) happened primarily in the United States.

In 2018, the crypto-currencies had a roller-coaster ride that had early adopters worried but the underlying benefits they bring ensures the technology will stay on, in one form or the other. As more and more people become knowledgeable about crypto-currencies, the price volatility and other niggling problems will dissipate just like what happened with the internet.

The coming year will see more changes to crypto-currencies as the movement attempts to self correct and when this process eventually ends, we will have a much better alternative system.

Unpacking the Blockchain technology

Unpacking the Blockchain

That Blockchain technology underpins Bitcoin and other crypto-currencies cannot be over emphasized, Blockchain is an integral part of any decentralized digital coin. However, this technology has possibilities that extend beyond digital currencies although ignorance seems to be the main factor behind the apparent slow embrace of the technology.

There is no doubt, this is a fairly complex topic that is not easy grasp but we try to simplify the main issues so that as many people can get a good idea about this game changing technology.

Blockchain technology is loosely defined as a growing list of records, called blocks, which are linked using cryptography. Cryptography itself is the art of writing or solving programming codes which ultimately confirm data records, and facilitate consensus.

Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. By design, a Blockchain is resistant to modification of the data. As a consequence, Blockchain brings trusts between parties, a role currently entrusted to intermediaries like lawyers, central banks, Escrow, regulatory authorities etc hence the growing popularity.

Blockchain gives transacting parties greater control and this is what makes the technology a hit with individuals who do not want third parties snooping around their private lives.

Still many might find this explanation rather difficult to grasp, so let us simplify this technology further by using an example of Cassava SmarTech’s Ecocash application. A few years ago, the company introduced a new function to the popular Ecocash mobile money transfer platform, the Ecocash Savings Club. 

This service allows a group of people to create a cash pool where all members contribute agreed amounts over a particular period (commonly known as ma rounds).

The unique advantage of the savings club over the traditional money clubs is the transparency it comes with. With a traditional club, one member is chosen to collect on behalf of all members and this is where problems are often experienced. For starters, some members will not contribute on time or will only contribute a fraction of the agreed amount and this destabilizes the club.

The essence of such clubs is to enable members to borrow small loans from collections made. Ordinarily members would not get such loans from conventional banks. So if one or more members fail to honour their commitment to contribute fully, this prejudices other fully paid up members, and often that is how such clubs collapse.

Now the Ecocash Savings Club uses a technology that allows members to overcome this challenge. To illustrate, each time a member contributes to the group’s Ecocash account, a message is simultaneously sent to all group members, informing them that member X has contributed. That way, it is easy for all members to track the progress of deposits into the pool and more importantly, if all members are adhering to set deadlines.

With respect to traditional clubs—which are supposedly based on trust—the second major problem concerns the abuse of members’ funds by the group’s trusted treasurer or any other member who has access. A person appointed to keep the funds prior to their distribution, may be tempted to use the money for personal gain and return this just in time before the next member is due to collect.

Often, this breach of trust is uncovered when the untrustworthy treasurer fails to remit the full amount to a member scheduled to receive the funds. This happens even as all members are up to date with their contributions.

Ecocash Savings’ Club application solves the problem by using the same technology to inform members if funds have been withdrawn and the identity of the member making the withdrawal. As an extra safety measure, the technology requires two members to authorize a withdrawal, with one making the request and the other one approving. On top of that, all members will get a message that a certain amount of the groups’ funds have been withdrawn!

Thus this Ecocash application enhances transparency as well as protection members’ funds from potential abuse. Any member attempting to subvert the club rules will be identified quickly and be ejected.

The Blockchain technology that underpins Bitcoin has many elements similar to this Ecocash Savings’ Club application, although it is much better in many ways.

Blockchain technology eliminates intermediaries because it uses applies a peer to peer technology in a new revolutionary way. Having such a technology means there are no costs of paying the treasurer, his administration expenses, travel expenses and perhaps more significantly, the risk of abuse or fraud is avoided.

It is then hard to understand why crypto-currencies have been subjected to continuing hostility when they offer these clear advantages.

Of course it is not so hard to understand why central banks lead this hostility towards to crypto-currencies, they stand to lose the most if digital currencies are widely adopted.

A report by the Brookings Institute of May 21, 2018, discussed the growing use of digital currencies and the implications for central banks.  The discussants were Agustin Carstens, General Manager of the Bank of International Settlements; Stefan Ingves, Governor of Sveriges Riksbank; Urjit Patel, Governor of the Reserve Bank of India; and Benoit Coeure, member of the Executive Board of the European Central Bank.

When asked if crypto-currencies are going to replace central banks issued currency, the response was an emphatic no. Their preamble was predictable, ‘Bitcoin and other crypto-currencies are popular, but most people don’t trust them the way they trust the U.S. dollar, the euro, or the Japanese yen, all of which are backed by a central bank.”

This is rather absurd assessment when one considers the fact that crypto-currencies emerged due to the dearth of trust in many central banks. In any case, the four discussants’ opinions are far removed from the realities on the ground in much of the rest of world, ordinary people in developing countries do not trust central banks after their polices destroyed national currencies not once but several times. Ordinary people have lost lifetime savings while pensions simply disappeared when money lost value.

Zimbabwe is in the midst of another economic crisis which is threatening to wipe out the value of bond notes, the country’s latest medium of exchange that was introduced in late 2016. In 2008, the Zimdollar, Zimbabwe’s currency collapsed after the central bank over printed the currency. 

Venezeula introduced a new currency in August 2018, after lopping off 5 zeros from the previous currency, the Bolivar, but already reports suggest the new currency is losing value fast. Iran’s currency has been tumbling since the United States withdrew from the nuclear pact. There are many more countries with problems with their currencies and the root causes are nearly similar.

In Zimbabwe’s case, the central bank is actually aware of the confidence deficit it has with the majority of the population. For instance, when it contemplated re-introducing the local currency, it had a hard time trying to assure ordinary people that things would be different as the currency had the backing of bank guarantee. 

It is sad to note that the assurances were not genuine as the same misdeeds that led to the initial collapse of the local dollar, appear to be behind the current bond-note slide. In a less ten years, the country had already returned to another currency crisis.

For Zimbabwe’s central bank, adopting crypto-currencies might just be what the doctored ordered given its legacy of abuse of trust. For a government that has displayed a propensity to consume more than it can produce, digital currencies will potentially keep the both, the central bank and government in check and stop the unrestrained issuing/printing of currency.

So Zimbabwe’s central bank should embrace Bitcoin and other crypto-currencies to restore confidence with ordinary people, instead of banning Bitcoin exchanges as it did earlier this year. Central bankers and their institutions publicly condemn crypto-currencies yet behind the scenes, they are exploring ways to starting their own digital currencies.

 The RBZ should follow the footsteps of Tunisia and Ecuador, both have issued their own digital currencies. However, instead of creating its own digital currency, Zimbabwe should adopt those already in use and this can partially restore confidence.

Digital currencies and other innovations in payment systems could increase the speed of domestic and cross-border transactions, reduce transaction costs, and eventually broaden access to the financial system by poor and rural households.

Terence Zimwara is a writer, economic analyst and Bitcoin enthusiast. Contact him on 263 771799901 email tem2ra@gmail.com Follow him on Twitter, Facebook

Innovation everywhere except with money

As the fight against Bitcoin continues

Terence Zimwara

Imagine getting a 1971 Land Cruiser as part of your perks for that new job you just landed. Or try picturing this, a teenage receiving a stereo from the 70s as a gift from her brother who happens to be much younger than the gift itself!

The outcome of the two scenarios above is quite predictable, a total rejection of the offer yet that is exactly what the financial elites have been doing.

 Money has not evolved as has everything else since it adopted its current form in 1971 and strangely we accept this. Richard Nixon, then US President, set a worldwide trend when he announced the temporary suspension of the gold standard currency and the birth of fiat currency. Almost fifty years later, fiat currency remains the medium of exchange of virtually every country.

In fact, today few people understand the gold standard--the previous money system widely used prior to 1971-- many are now accustomed to floating currencies and the associated inflation.

It is curious that only money has lagged behind as many other facets of our lives have changed. We used to have LP records, audio cassettes, alarms, video cassettes, compact discs, memory cards, wrist watches but they have all come and gone, making way for better products.

We had a fax machine once but it has become outdated, we no longer send telegrams because we now have better ways to relay information quickly. Of course we cannot talk about innovation without mentioning the internet. The internet itself gave birth to a host of new products and it has become hard to keep up with the inventions.

So why have we not seen disruptive innovations in the currency arena as well? Why have the controls or regulations that guarantee a monopoly to currency issuers increased over the years?

Usually when a product or service fails to perform, it usually spurs on a race by entrepreneurs to try to find a solution, by designing alternatives. When an alternative succeeds, the old product is gradually phased out yet this does not seem to apply to fiat currencies!

Since 1971, countries have experienced monetary problems that culminated in the collapse of their respective fiat currencies. Surprisingly, every time this happened, clueless governments have simply hoodwinked citizens by introducing yet another paper money, with the promise that it will not collapse. 

Immediately after a currency is rebased or reintroduced, government officials will start another process of debasement (depreciating it) by repeating the same policies that resulted in runaway inflation and devaluation of currency.

Famous academic, Albert Einstein, once described insanity as the act of doing the same thing over and over again but expecting different results. The failure to reform the way currency is created fits with Einstein’s conclusion that governments are either insane because they keep resurrecting a failed currency system or they are deliberating creating giant Ponzi/Pyramid schemes disguised as money to impoverish hardworking people.

Today, the currency debasement phenomenon is no longer an aberration, citizens are actually pre-conditioned to expect this, the budget deficits or interest rates manipulation.

 However, the growing recurrence of currency crises has simultaneously had many people questioning the very foundation of money. It is this sort of questioning that ultimately led to the emergence of crypto-currencies.

Nevertheless, it has to be noted that between 1971 and 2008, there were several attempts to create an alternative to fiat currencies that are issued by central banks, but every time those efforts were crushed. Government leaders acknowledge the flaws of the present system of currencies, but choose to ignore this because of the power that the system gives them.

Consequently, private citizens who have attempted to run parallel systems have been fined, they have been hit with heavy lawsuits and sometimes even jailed. Others saw the state using frustrating tactics to stop such private currency initiatives. For example, Italian lawyer Giacinto Auriti introduced his own paper money, a culmination of his long-running campaign against central banks and their monopoly on money production. In 2000 the Italian financial police, the Guardia di Finanza, shut down his experiment.

Apparently, there is an agreement between monetary authorities globally that the monopoly to create money is non-negotiable. It does not matter if the country is a communist state, a totalitarian state, a dictatorship or a fully fledged democratic state. They all want the exclusive rights to issue currency for selfish reasons--wealth accumulation and power.

So for a long time, academics and social commentators have a waged the battle to against this system without much break through.

Friedrich Hayek, a famous Austrian economist and a Nobel Prize winner, is one prominent figure to publicly call for the establishment of competitively issued private moneys in his book, The Denationalization of Money published in 1976.

Hayek famously made this quote, ‘I do not think it is an exaggeration to say that history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.’

He went further,’ I fear that since ‘Keynesian’ propaganda has filtered through to the masses, has made inflation respectable and provided agitators with arguments which the professional politicians are unable to refute, the only way to avoid being driven by continuing inflation into a controlled and directed economy, and therefore ultimately in order to save civilisation, will be to deprive governments of their power over the supply of money.’

It is remarkable that Hayek made the observation less than 5 years after fiat currency was introduced. There was a problem with fiat currencies then but the problem would only grow, first culminating in the 1987 New York stock market crush and finally the financial recession of 2008 caused by New York banks.

There is so much evidence pointing to an eventual collapse of currencies and naturally governments should be drawing up plans to pre-empt this sort scenario.

It is thus bewildering that creative minds are being persecuted for creating or supporting alternatives to national currencies. Across much of the Western capitals, people have been arrested for trading in crypto-currencies while Bitcoin exchanges have been shut down and others hacked.

It did not end there, the International Monetary Fund (IMF) has urged central banks to fight crypto-currencies. True to form, central banks are frustrating crypto-currency traders. Just recently in Kenya, a client who wished to purchase Bitcoin had a nightmare when a bank refused to clear a transaction only to reverse it after seven days.

Unbeknown to the client, the Central Bank of Kenya (CBK) seems to have an agenda against Bitcoin because apparently, when the same transaction was repeated but only this time, the client simply stated the reason for the payment just as ‘business’ without referring to Bitcoin, the payment went through smoothly.

It is these kinds of tactics that effectively scare potential users of Bitcoin, at least in the short term, because by threatening to lock out those embracing crypto-currencies from their funds inside banks, central banks achieve their immediate objective—blocking a quick and significant embrace of Bitcoin.

However, without offering an alternative that at least matches Bitcoin, no central bank will be able to stop Bitcoin or alt coins. The long honeymoon is over, the Blockchain technology was created to fight the central bank system and after nearly fifty years of zero innovation, the fight looks to be over before it has even begun.

Central banks particularly those in Africa, should actually pioneer embrace of digital currencies by incorporating crypto-currencies into their financial systems to reduce exposure to volatile world currencies.

So when the rest of the world follows suit, the continent central banks will be at an advantage.

Terence Zimwara is a Zimbabwe based writer, economic analyst and crypto-currency enthusiast. You can contact him on +263 771799901 or email tem2ra@gmail.com.

Is the world any closer to a nuclear weapons free society

Unfortunately, this is rather a controversial topic. In fact, it’s a taboo subject in some lands while in others, the anti-nuclear movement continues to grow. For the uninitiated, nuclear energy technology is a good thing to have because it elevates a country’s status but the experienced know the risks to human life and the environment posed by such materials.

Countries that know better, the US and Russia are busy ripping apart agreements like the Intermediate-range Nuclear Forces treaty (INF) which seeks to control the proliferation of nuclear weapons. 

There is no doubt the two powerful rivals will engage in another mindless nuclear race.

 But why nuclear weapons at all when it has been demonstrated that a nuclear detonation causes such a disproportionately large and permanent damage. In fact, simple logic would require all nuclear weapons states (NWS) to dismantle/destroy all nuclear weaponry! 

Sadly, simple logic often ranks behind national security considerations for many countries. One would think that the Fukushima and Chernobyl nuclear tragedies should have galvanized a concerted global action towards reduction or even total destruction of nuclear material by states several years ago.

However, the reality is that beyond the declarations and treaties, NWS are unwilling to reduce their nuclear arsenals to levels below what they would deem a credible deterrent. From a security standpoint, the argument seems to be, your enemies will not attack you if they believe you have a deadly weapon that you can retaliate with. 

Perhaps that is why beyond the rhetoric by the US President Donald Trump at the UN General Assembly in 2017, the superpower has not contemplated attacking North Korea because the latter possesses nuclear weaponry that can strike American territories.

So based on this national security argument, military strongmen and hawkish politicians from states that possess nuclear weapons have long resisted calls to eliminate nuclear weapons. While much of the rest of the world has adopted a series of treaties and declarations to stop proliferation of nuclear weapons, the initial NWS states namely, United Kingdom, France, Russia, China and the United States are still to abide by their Nuclear non-Proliferation Treaty (NPT) Article VI obligations.

The NPT forbids countries without nuclear weapons from developing such armaments while those that already have them must disarm although there is no timeframe set for this to be completed.

In addition to the original NWS, India, Pakistan and Israel also possess nuclear weapons but have refused to be party to the NPT process while North Korea, a recent nuclear power, actually withdrew from the NPT back in 2003.

It appears there is another incentive for possessing the nuclear bomb, in addition of course, to the usual credible deterrent mantra! Nuclear weapons give hegemonic power to those possessing them. When you possess this weapon the rules are different.

To illustrate, Israel, which maintains a nuclear policy that it terms amimut in Hebrew or opacity, is believed to possess several nuclear warheads enough to decimate all its Arab rivals. So because of this ‘power imbalance’, Israel has not been invaded by conventional Arab armies since the Yom Kippur war in 1973.

 At the same time, the Jewish state is constantly accused of acting with impunity against regional rivals who cannot retaliate forcefully because of the threat of nuclear annihilation. There is no denying that Israel is an unmatched military power in that region due to superior weapons, better training and US support. However, the continuing investment into nuclear deterrent by Israel also shows this nuclear threat has worked for the Jewish state.  

Elsewhere in the Middle East, Syria and Iraq have all attempted to build this bomb (without success though) because for them, the weapon ‘improves security’ while giving the owner of the bomb dominance over rival regional powers.

In the meantime, North Korea has routinely used the threat of a nuclear attack to extort concessions from South Korea and the United States. Pyongyang has learnt that constantly reminding your enemies that you have a nuclear bomb apparently gives you leverage when negotiating with even bigger rivals.

Iran was able to gain a number of concessions from the United States and the European Union when it negotiated the Joint Comprehensive Plan of Action (JCPOA), a far reaching 25 year settlement that constrained Iran nuclear capacity in exchange for sanctions relief. While the JCPOA is on verge of collapse, the Iranian case also highlights how global powers treat differently countries that are on course to acquire the bomb.

Sadly, this irregular approach to gaining power is now threatening the movement against nuclear weapons proliferation. Turkey and Saud Arabia have openly threatened to start their own nuclear weapons programme if Iran is ‘allowed’ to build nuclear weapons. There is no guarantee that these countries are not already building weapons given the secrecy that often surrounds a military nuclear weapons production.

In Africa, few countries have the wherewithal to run a successful nuclear weapons program. The apartheid regime had a few nuclear bombs but South Africa abandoned them prior to joining the rest of the world in 1994. The Mummar Gaddafi’s Libyan government ran a secret weapons of mass destruction (WMD) program before abandoning this in 2003. Both decisions were hailed as victory for the nuclear disarmament movement.

However, there is a growing sentiment that Africa remains marginalized on the world stage, particularly at the United Nations simply because no country on the continent has a nuclear deterrent. The Jacob Zuma led government complained bitterly when Western countries intervened militarily in Libya 2011 following an uprising.

Zuma argued African countries could have provided a better solution than the bombing campaign that left Libya without a properly functioning government thus availing a safe sanctuary for militant groups. It is also plausible to suggest that if Libya still had its WMD program, France and NATO would not have attacked and perhaps a ‘better’ solution to the civil conflict would have been arrived at.

Besides running a WMD program, Gaddafi was an outspoken critic of what he saw as double standards by the world’s superpowers. He regularly called for reforms to key global institutions such as the United Nations where a few countries--the original NWS-- dominated.

Perhaps South Africa feels it might be the next military target since it gave up its WMDs like Libya and became a signatory to a number of non-proliferation treaties. South Africa is vocal critic of what it sees as Western double standards when it comes access nuclear technology and just like Libya, it has called for reforms to global institutions. However, South Africa is the only country on the African continent that uses nuclear technology for energy.

The reader should note that nuclear materials, technology and expertise associated with nuclear fuel cycle are inherently dual-use, meaning they are useful both for civil production of nuclear energy and military production nuclear weapons.

So in essence, South Africa still possesses the capability and capacity to produce nuclear weapons but has not chosen to do so.  Instead South Africa still believes in the nuclear free world cause in spite of the double standards exhibited by some NWS when it comes to disarmament. NWS continue to modernize as well as to add new capabilities to their nuclear forces.

Regrettably, these perceived double standards continue to make it difficult to convince other non-nuclear weapons states to totally eradicate radioactive materials in their respective countries. In fact, such ‘ hypocrisy’ by NWS has been used by some countries to justify development of nuclear weapons, consequently rendering the nuclear weapons free society goal a distant dream.

At this stage, nuclear disarmament advocates can only counter this state of affairs by increasing education and campaigns against nuclear weapons. More countries should speak out against the continuing nuclear arms race.

The Bitcoin option

In the last piece we discussed the future fiat currency in Zimbabwe and we briefly touched on some of emerging alternatives namely crypto-currencies and good old barter trading. Today we zero in on crypto-currencies; Bitcoin, Etherium, etc.





There is no doubt, the Bitcoin epitomizes crypto-currencies, after all this was the most searched word on Google in 2017 as people around the world took a keen interest. Bitcoin value surged from a value of almost zero in 2009, to reach values exceeding $10000 by the end of 2017 and the trend continued into 2018 when it surpassed the $20000 mark.

This unusual growth presented exciting opportunities for would be investors but at the same time, it alarmed global monetary authorities as well as their cohorts within the global financial system.

Whereas the Bitcoin offers an opportunity to ordinary people to preserve value, established global financial players feel threatened. Apparently some of them are convinced crypto-currencies will disrupt the structure of global finance as we know it.

Prominent names in and outside global financial markets initially took turns to give negative reviews of the Bitcoin, often citing the currency’s limited track record, lack of regulation and volatility.

Bill Gates told CNBC that ‘as an asset class, you're not producing anything and so you shouldn't expect it to go up. It's kind of a pure 'greater fool theory' type of investment.’

Warren Buffet said Bitcoin is an asset that creates nothing while George Soros said its bubble although reports would emerge later that his fund planned venturing into crypto-currencies. Getting attacked like that by these billionaires is equivalent to getting the death penalty, it is hard to survive after that.

Yet the attacks have so far failed to completely destroy the Bitcoin precisely because there is one element of this currency that seems to offer a genuine alternative to the moribund fiat currency. Blockchain, the technology underlying crypto-currencies, is the first viable attempt outside the traditional central banking system to offer an alternative to fiat money.

In very simple terms, Blockchain technology pre-empts the problem of over printing of money, in this case the over-printing of Bitcoin. Ironically, the prominent figures attacking Bitcoin hardly contest the value of Blockchain technology, they just don’t like the digital currency.

According to the anonymous creators of this technology, there is a finite amount Bitcoin that can be mined or produced, about 21 million to be exact. So any attempt to debase, i.e. to create extra crypto-currencies will be rejected by a network of computers that perform a series of ‘complex’ calculations before any addition to the Blockchain is validated.

In other words, crypto-currencies are an attempt to cure the twin problem of inflation and currency depreciation caused by producing money disproportionate to a country’s output levels. As we explained before, central banks are tools used by the states to support the quest to live outside their economic means. This is achieved through either, the issuing of financial instruments like treasury bills (TB) and negotiable certificate of deposit (NCD) or currency printing for instance.

To illustrate, during the global financial crisis of 2008, the US Federal Reserve created a bailout fund known as Troubled Asset Relief Program (TARP) on behalf of the US government. The TARP was a response to the sub-prime loan crisis that had engulfed the US financial system. The US government wagered that by pumping about $700 billion into troubled businesses it could stop the total collapse of the US economy.

Since the US government did not have the $700 billion, it relied on the US Federal Reserve’s quantitative easing—euphemism for currency debasement—to finance the bailout.

Normally this causes a significant depreciation of a currency followed by inflation. However since many countries peg their currencies against the US dollar, many people did not immediately realize this and the gamble paid off. In any case, the US dollar is the reserve currency of many countries, so while it lost value after this period, the exchange rate of the US dollar versus the Euro has not changed much.

Three years prior to the financial recession, the Euro dollar exchange rate was € 1:$1.25 but went up at the height of the sub-prime loan crisis to an average of € 1:$1.4 in 2008. Yet by December 2018, the US dollar had recovered to €1:$1.13. The same is also true with respect to Dollar/Yen exchange rate or Dollar/Rand exchange rate.

In a way, the US managed to minimize the effect of quantitative easing (currency debasement) on its economy by virtue of the perceived strength of its currency. Since countries continue to hold the US dollar as a reserve currency, they unwittingly helped the US by absorbing some of inflation burden that resulted from the US Federal Reserve actions.

Smaller countries often attempt to copy the US government’s financial engineering maneuvers but the dynamics are different. Zimbabwe did something similar and the outcome has been devastating. Zimbabwe’s government sponsored agricultural program, the Command Agriculture as well as the bailing out of loss-making state owned companies are some of the expenditures financed through the RBZ’s own form of quantitative easing. Through a combination of TBs issuance and an overdraft facility, the central bank enabled government to increase its domestic to almost $10 billion in local currency.

Unfortunately for the RBZ, Zimbabwean money only circulates inside Zimbabwe, it has no appeal outside the country. So when government initiated these expansive expenditures, the negative effects of this form of currency debasement were felt quickly because the country could not spread the inflation burden like the United States can. So after their introduction two years ago, the bond note currency now look destined for a collapse just like the Bearer cheques or the Zimdollars before it because of the dilutive effect of the TBs issuance or the printing of money.

Crypto-currencies can potentially offer countries a break from the situations explained above. If what occurred in the US 2008 had happened in a crypto-currency dominated environment, then the US government would have been forced to find other ways to solve the crisis since it could not ease its way out. Deep spending cuts would have been initiated and inefficient companies would have been allowed to collapse. In fact, the US would have been forced to carry out economic reforms similar to those it is now prescribing to Zimbabwe!

Crypto-currencies have a potential to force governments to live within their means while bringing back confidence into the global financial systems. For smaller central banks, holding crypto-currencies as reserves will provide cover in case bigger institutions like European Central Bank or the US Federal Reserve pump billions into financial markets again.

 There are many possibilities that crypto-currencies offer but there are niggling issues the anonymous creators of Bitcoin need to address. The creators obviously have reasons for choosing to stay anonymous but that has given room to objectionable elements to use this technology inappropriately.

Central banks’ have used this ability to transact anonymously as their main line of attack against the Bitcoin. Criminal gangs, money launderers, tax evaders and terrorists could be using Bitcoin to finance their operations something that should concern people behind the name Satoshi Nakamoto, the creator of Bitcoin.

Also the possibility of losing digital currencies because of cyber-theft, bankruptcy of a digital currency exchange, or volatility in the price of digital currencies is something that concerns most potential buyers of crypto-currencies.

 Addressing some of these concerns will ease genuine concerns thus ensuring crypto-currencies will become part of the mainstream regardless of the opposition by financial elites.

Inflation growth undercuts government’s ambitious budget

Professor Mthuli Ncube’s much vaunted austerity plans appear to be off the rails following the announcement of another surge in the inflation rate. The year on year inflation rate for the month of November 2018 as measured by the all items Consumer Price Index (CPI), stood at 31.01%, a gain of 10.16 percentage points on the October 2018 rate of 20.85%. The significant growth of the rate underlines the weakness of the general economy and officials’ poor grasp of the fundamentals.

That there is a 10.16 percentage point increase in November against the 15.5 points jump seen in October 2018 should not been seen as a consolation.  The inflation growth is proof that the economy might be galloping towards another period of hyper-inflation.

Zimstat said ‘the year on year food and non alcoholic beverages inflation prone to transitory shocks stood at 42.71 % whilst the non-food inflation rate was 25.40%.”

Following the budget statement, government projected the inflation rate to close at 25,9% in 2018 from an initial budget target of 3,01%. Further, Ncube announced plans to stop unplanned expenditures as well as ending government’s overdraft facility at the RBZ as strategies of fighting inflation. 

A week later, the minister announced a primary budget surplus of $29 million for the month of October as evidence that government was walking the talk when it comes to fiscal reforms.

However, the growing inflation rate raises a red flag about the genuineness of government reform efforts.   Government had anticipated inflation growth of 5 percentage points for the remaining two months of the year, yet in the month of November alone, it surged by 10 percentage points.

We are already midway through December and there has been not been anything or an important change in the economy to suggest that the inflation rate will drop. 

Prices will remain very high but perhaps more importantly, they will continue to increase. The parallel market exchange rate which remained stable throughout the month of November has been slowly growing and that further fuels price increases.

However, after the festive period, demand for foreign currencies will soar when companies re-open and consumers’ demand rise. During that period, parallel market rates are expected to surge and the knock on effect will result in even higher price increases.

With rising costs, government will not be able to stick to its 2019 budget targets as they will become more unrealistic as the year progresses.  Already the crippling strike by doctors is already highlighting the challenges that government will face in the coming year. Doctors are pressing to be paid their salaries in foreign currency as one of their key demands but government has so far refused to accede to this demand because it has no capacity to do so.

The bulk of the civil service might join striking doctors as their salaries are eroded by inflation. It is plausible that at some point government will resort to TBs or currency printing in order to placate restive civil servants, among them soldiers.

Unless by some miracle chance the country gets a financial bailout, there will be carnage in the economy. Meanwhile,  inflation growth once again puts the spotlight on government’s increasingly absurd insistence that there is parity between the US dollar and RTGS/bond dollars.

Prior to the introduction of bond notes, the inflation rate had remained below 5% for more than 7 years. That the economy began to see a substantial inflation growth after the bond notes were introduced really points to a disparity between local currencies and the greenback.

It remains to be seen how much longer foreign currency earners will continue to accept the RBZ prescribed forex retention ratios as these are crippling their operations. While government mobilizes a bulk of its foreign currency needs through the retention ratios, which are skewed against exporters, the foreign exchange generated from such exports remains inadequate to meet the country’s needs. For instance, the Grain Millers Association says the country’s wheat worth $12.2 million remains stuck in Beira, Mozambique because the central bank has not availed the foreign exchange required to pay for it. Fuel companies are asking for more allocation of foreign currency to meet the growing demand.

Businesses and individuals that fail to get allocations from the central bank are then forced to source on the parallel market where the premium continues to grow. The premium is simply passed on in the form of higher prices and this cycle repeats itself to a point when growth of inflation reaches hyper inflation levels.

Once that point is reached, government will not be able to stop or control inflation until something fundamental occurs, change in government or perhaps a GNU as was the case in 2008.

Nonetheless, there is still time for Zimbabwe to halt its descend if it adopts some of the recommendations made by various players prior to the budget.

Cholera outbreaks must galvanize action against chemicals weapons proliferation

When the United Kingdom alleged that a Soviet era nerve agent—Novichok—a deadly chemical agent was used in an attempt to assassinate a former Russian double agent, there was a near unanimity in condemning this act. 

For days, the global media covered this story extensively while several countries took action against the Russian government for its involvement in the attack.

Similarly, when the half brother of the North Korea leader died as result of exposure to another nerve agent—VX—in Malaysia in February 2017, there was worldwide condemnation.

The two attacks were in staged in peacetimes and in public places hence the international outrage. Unfortunately, for many people in Zimbabwe and indeed across the continent, this was a European or an East Asian problem. 

This level of ignorance or indifference concerning these human interest matters, ironically by people who expect the same European or Asians to rush with aid when disease outbreaks devastate the continent, is simply mindboggling. 

  

Chemical and biological weapons proliferation is global challenge that should concern everyone, including Zimbabweans. There are states and non-state actors that have a whole range of chemical and biological weapons that are ready to be used during times of political upheavals hence the need to speak out.

Perhaps it will interest or frighten Zimbabweans to know that Bacillus anthracis (Anthrax) and Vibrio cholera (Cholera) are actually weapons that some countries have used as part biological warfare against enemies. 

For instance, the Apartheid regime of South Africa used anthrax and cholera as tools for its assassination program. Botulinum toxin, Brucellosis (Brucella melitensis), Clostridium perfringens and salmonella tyhimurium are some of the bio-weapons the regime had at its disposal.

This is not a conspiracy theory, there is documented evidence of this. However it is important to note that South Africa dismantled its biological weapons program in 1993, right before it became member of the community of nations. Today South Africa is global leader in the fight against the proliferation of weapons of mass destruction (WMD).

This article is neither an attempt to link the current outbreak of cholera in Zimbabwe with biological weapons nor is this an effort to feed local conspiracy theories about the genesis of this outbreak.

I made this point (about the apartheid regime’s WMD program) to prod an indifferent population into joining other progressive countries in demanding the total abolition biological and chemical weapons.

As it stands, there are several countries that possess huge stockpiles of WMDs although they refuse to acknowledge this publicly. 

Few countries like the United States, do acknowledge possession biological agents like Anthrax and Brucella but argue these are kept for research purposes. The Centres for Disease Control and Prevention (CDC), is a US government agency charged with protecting health and promoting quality of life through prevention and control. The CDC is tasked with maintaining these biological agents.

However, the same CDC was in the news in 2014 after it was reported that it lost a box containing deadly and highly-regulated ‘influenza specimens.’ In addition, different specimens were sent to wrong addresses over a period of six years.

Such disease specimens in the wrong hands could have deadly consequences and this is just one case of the few that get reported! So in the end, it will be difficult to entirely discount the possibility that some of the disease outbreaks we see today are a result of the proliferation of these biological agents.

Therefore to pre-empt the possibility of such attacks, countries must step up efforts to uphold the ban on biological and chemical weapons. 

Whenever these weapons are used, Zimbabwe must join the rest of world in condemning their use and coordinate with other countries taking action against the offending parties.

The Biological Weapons Convention (BWC), the first multilateral disarmament treaty banning the development, production and stockpiling of an entire category of WMDs entered into force in March 1975. Ten countries have refused to be signatories to the BWC.

Zimbabwe as a signatory to BWC, as well as one country that is regularly hit by disease outbreaks, must demand accountability from institutions such as the CDC. More must be done by way of education and awareness efforts to help reduce levels of ignorance regarding bio-weapon proliferation.

Then as more people become engaged in this anti-WMD debate, the Zimbabwean government will be forced to become proactive in this global initiative as well.