Monday, 2 May 2016

Forget Bitcoin: Zimbabwean dollars is where it's at!

Bitcoin is a well-established virtual currency. Its popularity was largely fueled by a surprisingly strong display of growth in 2013, when the value of a single Bitcoin shot up from around $13 to more than $1,000 in less than a year. Despite a few crashes along the way, Bitcoins are still worth around $400-$500 today, and a variety of online stores and hosting providers readily accept Bitcoin as a method of payment.

Zimbabwean dollars, on the other hand, are somewhat less useful... or are they?

During an intense period of hyperinflation in 2008 and 2009, many of Zimbabwe's banknotes became, literally, worth less than the paper they were printed on. The government attempted to counter the problem by printing larger denominations of notes, and even re-denominating the currency by removing zeros, but this was not sustainable. The Reserve Bank even had to delay production at one point due to running out of special paper for printing money.

By 16 January 2009, the Reserve Bank introduced trillion-denominated notes for the first time, with the largest of these being the 100-trillion dollar note ($100,000,000,000,000). These notes also rapidly became nearly worthless, with one newspaper even using them as printer paper in an advertising campaign.

A zero short: A ten-trillion dollar banknote issued by the Reserve Bank of Zimbabwe.

The Zimbabwean dollar was eventually suspended on 12 April 2009, when the use of stable foreign currency was legalised. This practically eliminated the problems caused by hyperinflation, which had peaked at around 500 billion percent in November 2008. Crazy!

Since then, Zimbabwe has mostly been using US dollars and South African Rand as currency, although Euros, Pounds Sterling, Chinese Yuan and others are also used as legal tender.

In July 2015, several years after Zimbabwe's hyperinflation woes had been brought to an end, its citizens were allowed to exchange the old Zimbabwean dollar banknotes back into US dollars.

This demonetization program gave citizens 5 US dollars for every 175 quadrillion dollars of Zimbabwean notes handed in.

This made Zimbabwe's 100-trillion dollar note worth just $0.40 (US) - a rather paltry amount considering it was the largest denomination ever issued by the Reserve Bank of Zimbabwe.

However, this is where the Zimbabwean dollar gives Bitcoin a run for its money: Zimbabwe's 100-trillion dollar note might only have been worth $0.40 last year, but it holds special value to numismatics who regard it as the banknote with the most zeroes ever shown in its design.

Today, less than a year later, it is common to see these 100-trillion dollar notes being sold online for up to $50 each - more than 100x their exchange value. This is similar to the rate of growth experienced by Bitcoin during 2013.

And like Bitcoins, the number of 100-trillion dollar notes is also in finite supply. No more will ever be printed, and so perhaps that might cause their value to increase further still.

Despite no longer being legal tender, Zimbabwean banknotes are evidently valuable and offer several advantages over Bitcoins. They cannot be stolen by malware or remote hackers, they require no technical knowledge to use, and because they are tangible items they are easier to use in physical transactions.

On the other hand, if your stash of Zimbabwean banknotes burns down in a house fire, it will be lost forever. At least Bitcoin wallets can be backed up.