THE controversy surrounding the introduction of another local currency continues unabated. This time it was the former Finance minister, Tendai Biti, who ignited the current debate when he announced government’s imminent plan to launch another new currency.
This was immediately rebutted by current Finance minister Mthuli Ncube although he has promised a new currency within 12 months. As expected, the debate is so much about when and not why we need a new currency. Very few have questioned why we have to continue with this routine of new currency after a few years.
Perhaps the time is now to question the very premise of money as we know it. Money has not evolved as has everything else since it adopted its current form in 1971 and, strangely, we accept this. Richard Nixon, then United States president, set a worldwide trend when he announced the “temporary suspension” of the gold standard currency and the birth of fiat currency. Almost 50 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We had a fax machine once but it has become outdated.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 telegrammes 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 or substitutes. 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 has happened, clueless governments have simply hoodwinked citizens by introducing yet another form of paper money, with the promise that it will not collapse. Immediately after a currency is rebased or re-introduced, 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 scientist 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 dovetails into Einstein’s conclusion. Governments are either insane because they keep resurrecting a failed currency system or they are deliberating creating these 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 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 waged the battle 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 Denationalisation 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 to say: “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 five years after fiat currency became the norm worldwide. 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 the respective governments should be drawing up plans to pre-empt this sort of 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, innovators and enablers. For example, a bank client in Kenya who wished to purchase Bitcoin had a nightmarish experience when a bank refused to clear a transaction, before reversing 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 and regulators achieve an immediate objective — blocking a quick and significant embrace of crypto-currencies.
However, without offering an alternative that at least matches the attributes of crypto-currencies like Bitcoin, no central bank will be able to stop further adoption of these digital currencies. The long honeymoon is over, the blockchain technology has taken the fight to central banks. After nearly 50 years of zero innovation, the fight looks to be over before it has even begun.
Central banks, particularly those in Africa, should actually pioneer the 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 instead of playing catch up everytime.
Zimwara is a writer, economic analyst and crypto-currency enthusiast and advocate. — +263 771799901 or email email@example.com. Submitted by Lovemore Kadenge, president of the Zimbabwe Economics Society. — firstname.lastname@example.org or mobile +263 772 382 852.