Bitcoin Trading at 85% Premium in Zimbabwe – Priced at $7,200
Stories of hyperinflation in various countries have been mounting in recent days. As citizens face the reality that their country has devalued its currency, they are forced to take backpacks of cash to buy a loaf of bread.
Within these devalued currency environments, other forms of money–stable ones–are welcomed. Zimbabwe is one such nation. There, hyperinflation reached a critical point in 2008, and is threatening again. The country appears to be headed toward another bout of hyperinflation and citizens are turning to dollars and Bitcoin.
Bitcoin in Zimbabwe
The use of Bitcoin in Zimbabwe has grown exponentially as the government has begun to stop all credit card payments and has restricted the flow of cash into and out of the country. People wishing to make payments for vehicles have been forced to use Bitcoin and car lenders are happy to accept.
In all the chaos, the price of Bitcoin on the local exchange, BitcoinFundi, has soared to $7,200. This premium reflects a frantic desire to find ways to transact within an economy where government controls have made traditional means impossible.
Recent reports from Venezuela, where hyperinflation is actively routing the economy, indicate that a similar rise in Bitcoin usage has taken place. Citizens have been forced to turn to non-governmental sources for business purposes, leading to suggestions that such economies could face ‘Bitcoinization’.
Written by cointelegraph
Governments Are Testing Their Own Cryptocurrencies
The people of Sweden are breaking up with cash. The number of banknotes and coins in circulation has fallen to its lowest level in three decades. Riksbank, Sweden’s central bank, estimates that cash transactions made up only 15 percent of all retail transactions last year, down from 40 percent in 2010, thanks in large part to massively popular mobile payment services.
The situation has left Sweden’s central bankers wondering: should the country introduce a purely digital form of government-backed money? And if so, should it use technology similar to that underlying Bitcoin?
Riksbank isn’t the only central bank taking a serious look at blockchain, the technology that makes Bitcoin and other cryptocurrencies run. These systems, also called distributed ledgers, rely on networks of computers, rather than a central authority like a bank, to verify and record transactions on a shared, virtually incorruptible database. Government bankers across the world believe this has the potential to replace cash and make other payment systems more efficient.
Central-bank-backed cryptocurrencies would be ironic indeed, given that Bitcoin was created as a way to circumvent the need for banks. Beyond that, the idea raises complicated questions about how such systems should be designed, built, and maintained, as well as how they could affect a country’s—or the entire planet’s—financial stability. That’s why Riksbank is hedging its bets, investigating not only distributed-ledger technology—which it describes as unproven but “progressing incredibly rapidly”—but also traditional, centralized accounting methods for its “e-krona” (pdf) project.
Some economists have argued (pdf) in recent years that a cryptocurrency tied to central-bank-backed money could give governments a way to issue digital tokens that are a lot like cash. Users of such a “FedCoin” would enjoy the level of anonymity that Bitcoin provides, goes the theory, while being protected against the volatility that has plagued cryptocurrencies. Many countries’ central banks are investigating this idea, but Sweden looks to be the furthest along.
But a cryptocurrency that’s available to all consumers “opens up a whole host of issues” and would pose new challenges for makers of monetary policy, says Rod Garratt, an economics professor at the University of California, Santa Barbara.
First, there’s the question of who, exactly, should verify the transactions and maintain the distributed ledger. Even if that’s solved, the new system would be, in a sense, too streamlined, making it easier for bank runs to occur in a moment of crisis or panic. In most current financial systems, large-scale withdrawals of funds are naturally slowed by the time it takes for a central bank to produce the paper money people are demanding. But if the currency is purely digital, no such brakes exist—a panicked citizenry could empty their accounts almost instantly, leaving an entire country’s banking system all but penniless.
A new journal article (pdf) published by the Bank of International Settlements, a kind of central bank for central banks, suggests a more straightforward approach than trying to use cryptocurrency to replace cash. In the article, Garratt and Morten Bech, a researcher at the BIS, draw an important distinction between a “retail” cryptocurrency like FedCoin and a “wholesale” one that would only be used by banks.
One important role central banks play in the global financial system is to facilitate large payments between commercial banks. Commercial banks make deposits at central banks, and when they need to send a large payment to another bank, as they might during the sale of a company or house, they can rely on a central-bank-operated payment system. The central bank handles the “clearing,” or the updating of each party’s account to reflect the new transaction, and the “settlement,” or the literal transfer of the money.
Many central banks’ wholesale payment systems are facing a problem: they’re based on obsolete programming languages and outdated database designs, and governments are looking for ways to modernize them. The central banks of Canada and Singapore both recently demonstrated prototype distributed-ledger-based wholesale payment systems that handle clearing and settling simultaneously, via a cryptocurrency token. China is also performing similar tests (see “China’s Central Bank Has Begun Cautiously Testing a Digital Currency”).
Since such a system would be restricted to banks, it would not have the same impact on monetary policy as a consumer-facing one, says Garratt: “You are just replacing the current back-office financial-market infrastructure.” Despite proofs of concept, however, the technology is still immature, and the current round of modernization efforts is unlikely to end up using distributed ledgers.
Even if this application were ready for prime time, it wouldn’t solve the issue that Sweden is facing. One obvious drawback to the country’s dwindling cash usage is that an increasing reliance on mobile payment systems risks marginalizing people who don’t use them or can’t access them. Those systems are also run by private companies, which means that commercial forces, rather than government policies, could end up determining how effectively the financial system serves people and the economy.
Ultimately, whether Sweden and other governments decide to take the cryptocurrency plunge could hinge on whether people actually want it, says Garratt: “Will the public demand a digital medium of exchange with properties similar to cash? In places where it does, maybe there will be pressure for governments to provide it, and in places where it doesn’t, there won’t be.” Either way, it’s going to take a while to arrive.
Written by MIT
First Bitcoinization of a Sovereign State is Happening Now
In recent months, news about Bitcoin being widely purchased and mined in Venezuela has led to a number of rumors regarding the growth and demand of the cryptocurrency there. An interview with Daniel Osorio of Andean Capital Advisors on CNBC indicates that the country may soon ‘Bitcoinize’ completely.
Osorio, who spends about a week per month in the South American country, was interviewed regarding the hyperinflation problems that Venezuelans are facing. During the interview, he explained that a simple lunch costs upward of 200,000 Bolivars, or about $8-$10.
In order to pay for lunch, locals are beginning to accept only Bitcoin or money wires of foreign currencies. The problem, according to Osorio, is that unlike Zimbabwe and other nations where hyperinflation has taken its toll, Venezuela does not have access to enough dollars to manage the economy.
Locals have, therefore, turned completely to Bitcoin in order to function economically. Since Bitcoin is independent of the black market for Bolivars, it represents a fixed exchange platform for business. Near the end of the segment, Osorio says:
“We may well be witnessing the first ‘Bitcoinization’ of a sovereign state.”
Cryptocurrency lovers would argue that this is just the first of many, as liquidity and access increase exponentially.
Why China’s Ban On Bitcoin May Be Temporary
China’s ban on Bitcoin and other cryptocurrencies may be temporary, to appease international agencies and hardcore communist members ahead of the upcoming Communist Party convention.
China’s big government and banks cannot tolerate Bitcoin. It threatens their very existence, as it was previously written in a piece here.
That’s in the long term, though, when Bitcoin has the potential to replace the yuan in everyday transactions, and as a monetary asset.
At present and in the immediate future, however, the size of the Bitcoin economy is far too small to be a real threat to the Beijing government and the banking system it owns and manages.
That’s why something else must be at play behind the Bitcoin ban. Like an effort by Beijing to demonstrate to international agencies, such as S&P Global, that it is in good control of the financial system and the credit conditions of the country.
If that was their aim, it didn’t work. S&P Global downgraded China one notch last week.
Then there’s the upcoming 19th Communist Party Convention, where the party leadership will be grilled by hardcore members on any innovation that threatens the party’s grip on the economy.
Actually, this isn’t the first time Beijing is going after innovations that threaten that. Back in 2011, a few months before the 18th Communist Party Convention, the party leadership at that time went after a controversial Chinese corporate structure, Variable Interest Entity (VIE). This structure had allowed Chinese companies to list their shares in US exchanges through “reverse mergers”—a strategy that drew the scrutiny of US regulators, due to a string of accounting irregularities among these companies.
Written By Forbes
Bitcoin’s price is spiking by 7 percent as traders shake off China fears
- The price of bitcoin is up nearly 300 percent year to date.
- Bitcoin is still under the $4,000 level, which it broke through after JPMorgan CEO Jamie Dimon said on Sept. 12 that the cryptocurrency is a “fraud” that will eventually blow up.
The price of bitcoin rose sharply on Monday with its price spiking up 7 percent midday, according to CoinDesk market data.
The price of the cryptocurrency is up nearly 300 percent year to date.
Bitcoin is still under the $4,000 level, which it broke through after JPMorgan CEO Jamie Dimon said on Sept. 12 that the cryptocurrency is a “fraud” that will eventually blow up.
In addition, recent reports said regulators in China have ordered bitcoin exchanges to close hurt the digital currency’s price.
“In my opinion, the markets overreacted to the China news. In the short term, it was bad news, but long term the fundamentals are unchanged,” William Mougayar, author of “The Business Blockchain,” wrote in an email.
Written by CNBC
Buying Bitcoin And Crypto Assets: The Ultimate Guide
Cryptocurrencies are the latest investing craze, attracting everyone from technology executives and Wall Street pros to novice speculators. Bitcoin, for example, has gone from $611 to a high of nearly $5,000 in the last year. Cryptomillionaires are being minted on a daily basis.
With bank savings rates at record lows, speculators are pouring money into so called ‘initial coin offerings’ or ICOs. These new unregulated crowdsales of crypto assets have pulled in $2 billion so far this year.
In fact, this pace nearly doubled from April to May, and the amounts keep getting bigger. The latest record was broken by blockchain data storage network Filecoin, which raised $257 million.
But the everyday buyer has no idea how this new technology works… or how to get their hands on tokens.
Written by Forbes
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