The Central Bank of Zambia responsible for the issuing the Kwacha (ZMW) fiat currency, has declared that Bitcoin and crypto, in general, are not legal tender. Other warnings about the risks of crypto are also included in this official declaration. This announcement comes at a time of worsening hyperinflation in Zambia, the ZMW has devalued 18% through August and September 2018, well above the hyperinflation threshold.
The Bank of Zambia specifically says “While cryptocurrencies have some monetary characteristics, such as being used as a means of payment on a person to person basis, cryptocurrencies are not legal tender in Zambia.” The Bank of Zambia goes on to clarify that they have not issued any state-backed cryptocurrency, and therefore no cryptocurrencies are legal tender.
While it is obvious that the Bank of Zambia does not approve of cryptocurrency based on this statement, this proclamation has no implications for crypto users in Zambia. The Bank of Zambia has no regulatory authority over crypto, and they don’t intend to regulate crypto. They say “Bank of Zambia does not oversee, supervise nor regulate the cryptocurrency landscape. Consequently, any and all activities related to the buying, trading or usage of cryptocurrencies are performed at the owner’s risk.”
The Bank of Zambia goes on to describe the possible risks associated with crypto as money laundering, terrorism, fraud, and hacking. To be fair, those are problems that fiat currency has too, and any form of money. However, with crypto, the Bank of Zambia warns that there would be no legal recourse for anyone who gets hurt when dealing with them since it’s unregulated.
Overall, this is actually good news for Zambian crypto users, since the Bank of Zambia is saying there are no regulations. In many other countries, Central Banks and governments have regulated crypto heavily, but Zambia is taking a hands-off approach. Further, the Bank of Zambia says “In line with the Bank of Zambia’s position that regulation should not constrain but enable innovation, Bank of Zambia will continue to actively monitor all developments.”
The reason this statement is coming at this time is probably because of the worsening situation of hyperinflation in Zambia, with the ZMW declining 18% versus the USD in only the past 2 months. Zambia is no stranger to hyperinflation, in 2012 Zambia had to cut 3 zeros off of the ZMW since inflation had made smaller denomination fiat bank notes practically worthless.
As seen in other countries with hyperinflation, like Venezuela and Iran, people will choose to put their money in crypto as a safeguard, and the government does not like this since it generates capital outflows that accelerate the collapse of the local fiat. Zambian economist Chibamba Kanyama confirms the situation “Zambians have been desperate on profitable investment vehicles for lack of a liquid stock market. Others are seeking for high interest or high yield investment vehicles from across the country such as offshore accounts. This is because interest rates on savings from commercial banks are below the inflation rate. The crypto market is the latest one and seems to have attracted a number of investors, some of them civil servants and retirees seeking to reinvest their pensions.”
Overall, compared to other countries experiencing fiat hyperinflation, the Bank of Zambia is being quite gracious and not doing anything to stop crypto besides this cautionary statement which could raise some skepticism about crypto.
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