Zimbabwe – a Bitcoin case study

After scrapping the national currency in 2009 when its inflation rate soared to an unbelievable 89 sextillion percent, Zimbabwe turned to foreign currencies which was a breath of fresh air for those who saw their savings become worthless. But now, the African country is facing an unprecedented cash crunch leaving many to search for a solution.

At the end of 2016, Zimbabwe’s central bank began issuing “bond notes,” or “bollars,” a paper currency-like note officially carrying the same value as the U.S. dollar. Backed by a loan of US$200 million from the African Import Bank, the notes were created in an attempt to ease shortages of U.S. dollars and South African rand.

The small denomination “bond notes” are not easily exchangeable in the market, leading businesses to turn to the black market to sell the notes at a premium in order to secure U.S. currency to purchase imported goods. This has forced higher prices on customers paying with the “bond notes.”

Chantelle Matthee, an analyst at NKC African Economics in neighboring South Africa, explained: “Firms’ prices reflect that one U.S. dollar in hard cash is equivalent to $1.30 in bond notes, meaning that the surrogate currency has already lost 30 percent of its value.”

While officially consumer prices rose only 0.6 percent year-on-year, in the real world, there are reports of merchants charging upwards of 40 percent for goods.

Zimbabwe’s government took this crisis to the next level, however, when diving into the electronic payment system. Nicknamed “zollars” by economists, the central bank began creating dollar surrogates lacking sufficient dollar or gold reserves as a backing.

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