Zimbabwe has begun printing bond notes, allegedly pegged to the US dollar, as a means to curb inflation, as other countries turn to Bitcoin.
In a resurrection of the African country’s currency not seen in seven years, the central bank is attempting to restart a Zimbabwean national currency, while simultaneously preserving its value from inflation.
The new bond notes are pegged to the U.S. dollar, allegedly backed by a $200 million bond facility with Afreximbank, as a safeguard against rapidly losing its value to hyperinflation, as was the case with the nation’s last currency.
Zimbabwe faced a currency crisis beginning in the late 1990s. Inflationary practices conducted by the central bank led to hyperinflation, doubling prices in 2001, and doubling prices nearly every day in 2007.
In 2009 the government stopped printing money, effectively taking the Zimbabwean national currency out of use. Since then, the economy has relied on foreign currencies for day-to-day transactions.
The black market still values bond notes less than U.S. dollars
Despite this effort to curtail runaway inflation by pegging the national currency to that of a more stable government and economy, the new bond notes still reflect a lack of trust in the government’s promises with the price they trade for on the black market. U.S. dollars are still accepted at a higher rate than bond notes billed as being worth the same amount.
This market value disparity has led to illegal money changers exchanging notes in the streets. These money changes dot the streets of Harare, maintaining a step ahead of police eager to shut their operations down. Their continued business shows that the government’s promise of the new bond notes being “inflation bullet proof” ring hollow in the minds of its citizens.
Countries with unstable currencies are turning to Bitcoin
In countries where the national currency experiences devaluation and destabilization, consumers generally flock to alternative stores of value, Bitcoin in particular. In Zimbabwe Bitcoin is not illegal but is not considered legal tender either, meaning one cannot demand it as payment for goods and services. This leaves open the possibility for Zimbabweans to embrace a more stable currency, at least for the time being.
India’s recent economic upheaval has also proved fertile grounds for Bitcoin adoption. The country’s two highest-denominated banknotes have been taken out of circulation, causing hardships for the country’s unbanked, as well as hurting those not able to exchange their old banknotes for new ones. This has led to a recent surge in Bitcoin use across the country. Venezuela, similarly experiencing currency issues as part of a full-blown economic collapse, has also turned to Bitcoin, as well as Dash, in order to stem the ill effects of runaway inflation in the national currency.