Zimbabwe’s Battle To Control Currency Inadvertently Boosts Bitcoin Profile

Zimbabwe’s deteriorating economic situation is forcing authorities to sign off on some desperate and controversial decisions. This includes the abrupt suspension of mobile money in the country as well as the recent designation of Zimswitch as a mandatory national payment switch.

Reserve Bank of Zimbabwe Suspends Mobile Money Service

Owned by banks, Zimswitch is the current payments switch to the same financial institutions. This designation has been made to, ostensibly, enable interoperability between financial services providers.

In a notice to the public Thursday, the Reserve Bank of Zimbabwe (RBZ) says all financial services providers including mobile money operators (MMO) must connect to this national payment switch.

The country’s largest MMO, Ecocash appears to be the target of this move by RBZ. Over the years, Ecocash has routinely been accused of frustrating efforts to enable interoperability between MMOs among a slew of charges.

Fighting Mobile Money Monopoly

Ecocash’s critics say the MMO does this to preserve its monopoly, a status it gained after investing heavily in building its infrastructure. Ecocash inevitably became the most dominant MMO, a fact confirmed by findings of a survey conducted by the local telecoms regulator. According to the findings, Ecocash accounts for more than 94% of all mobile money payments.

Furthermore, a study by the RBZ itself, reveals that mobile money dominates national retail payments, accounting for 80% of all such payments.

Inevitably, Ecocash’s dominant position has long been a source of tension with regulators and now government. Yet despite the threats and directives, Ecocash has steadfastly refused to be cowed into relinquishing its dominant position.

However, the country’s accelerated economic decline, as well as the hyperinflation environment, is reportedly creating tension and paranoia in corridors of power. Some commentators point the surprising decision to suspend mobile money transactions as an example of this paranoia.

As expected, Ecocash dared the government by refusing to abide by the suspension order. Ecocash argued that the government official making announcement erred as he did not consult with the RBZ before going public. The shortlived stand-off ended when the RBZ finally issued a statement wherein it regurgitates the government position.

Ecocash: Zimbabwe’s Economic Bogeyman

Now both government and RBZ sing from the same hymn book when it comes Ecocash. They accuse Ecocash of fueling activities on the “illegal” foreign currency black market. Ecocash is also accused of running a Ponzi scheme. Somehow, Ecocash has become the Zimbabwe economy’s bogeyman.

The designation of Zimswitch as the payments switch for all financial services providers appears to show a determination by authorities to check Ecocash’s influence. By gaining indirect control of the popular MMO, authorities hope they will also be able to rein in influential foreign currency dealers.

Ultimately, killing the black market for foreign currency appears to be the objective. However, it is doubtful if this objective can be realised through the use of such heavy-handed tactics.

Ecocash may be out of legal options to fight back this time but that may not be the case for shadowy foreign currency dealers. Dealers and now ordinary citizens seem to have found another option that does not include Ecocash. This option is bitcoin.

Faced with stringent foreign exchange regulations some Zimbabweans are switching to bitcoin when making payments across borders. Bitcoin is faster and not subject to normal regulations.

The Growing Use of Bitcoin

Still, others now prefer storing their funds in the form of bitcoin because they have absolute control. The government cannot control or suspend cryptocurrency as it has done with Ecocash. Bitcoin is also immune to local inflation which, according to John Hopkins Economics professor, Steve Hanke, now exceeds 1000% per annum.

Some foreign nationals are now also using bitcoin when remitting funds back to their home cou