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
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