Blockchain preempts counterfeiting

Earlier in the year reports emerged that the Zimbabwean central bank, the Reserve Bank of Zimbabwe (RBZ) had apparently printed and circulated an unknown number five dollar bills bearing the same serial number.

Since their launch in late 2016, the RBZ has insisted that bond notes—the new Zimdollar—are backed by reserves of foreign currency secured from a regional financial institution. Initially the plan was to inject notes and coins of a value not exceeding USD $200 million but the figure was later revised upwards after the central bank claimed it had secured more funds.

However, by printing bond notes that share a common serial number, the RBZ or those controlling it may have found a clever way of increasing money in circulation without upsetting the status quo.

This revelation lends credence to sensational claims made by a member of the Zimbabwe’s governing party, Cornelius Mupereri back in 2018. Mupereri claimed then that the RBZ had printed notes that exceeded the USD$200 million threshold by far and this was sometime before the bond notes began collapsing.

Injecting bond notes that share the same serial numbers into the market means the actual notes in circulation will increase yet records will show this number to be steady. There is no shred of ingenuity in that plan because the final result is catastrophic for the economy.

When counterfeiting is legal

Indeed, Zimbabweans were shocked by the reports (of notes with the same serial number) yet there has been no acknowledgement or a rebuttal by the central bank to date. Citizens were left to speculate as to who could be behind this confidence shattering act while some were quick to pronounce these notes as counterfeits.

However, it is the sequence of the serial numbers of the rest bond notes suggests that these particular notes came from the same source as the ‘non-counterfeited’ ones.

Apparently copying and pasting bond notes will only be ruled as counterfeiting when carried out by anyone else without the permission or license to do. If it is the central bank doing it then it is okay, the law permits this.

This officially sanctioned counterfeiting gets done despite the fact that the final outcome is always the same. Counterfeiting will result in the growth of inflation.

The general lack of transparency surrounding the operations of the RBZ and the fact that the public cannot audit a central bank means we may never know the whole story. The revelation itself could just be a tip of an iceberg!

This last point is easy to accept when one observes how the recently introduced bond notes have been collapsing, particularly over the past twelve months.

Meanwhile, in what can be seen as taking a cue from the central bank, some individuals are now reportedly using the Zimbabwe’s now defunct currency —the Zimdollar which disappeared in 2008 following a record inflation rate—to print fake bond notes.

The notes which had record breaking denominations—the highest ever printed was the 100 trillion dollar banknote—apparently have the same security features as the bond notes, the country’s current equivalent to the Zimdollar.

The similarity in security features makes the fake bond notes indistinguishable from the officially issued notes hence their circulation remains undetected.

Both the counterfeits—the official and unofficial—and the non-counterfeits notes are usually destined for the foreign currency black market. A deluge of bond notes against the ever scare USD usually results in the depreciation of currency.

Blaming easy targets

Such astonishing revelations (of banknotes that bear similar serial numbers) epitomizes the RBZ belief that it can still maintain a stable currency by repeatedly reassuring citizens that it is adhering to some kind of prudent currency management protocols while secretly violating the same.

Surprisingly when all this begins to backfire the RBZ has been quick to point fingers. The mobile money service, Ecocash as well as prominent and politically connected businessmen are the latest scapegoats. The RBZ accuses them of enabling or fueling the foreign currency black market.

As a consequence, Ecocash has seen an unprecedented interference in its business activities by regulating authorities while some shadowy businessmen had their bank accounts frozen.

Unfortunately, such decisions have failed to stabilize the currency’s multiple exchange rates and many actually predict a further depreciation of the Zimdollar by the end of the year. To compound matters, the central bank abandoned the multi-currency regime in favour of what it terms a mono currency regime.

With the USD now effectively banned for local transactions, cornered Zimbabweans need to realize that a cryptocurrency, which hitherto has not made inroads, can be a solution that the central bank needs to be forced to accept.

The blockchain option

As was the case with dollarization—which began taking effect informally in late 2006—ordinary people can still show RBZ the way by similarly taking the initiative with cryptocurrencies like bitcoin or ethereum. When a critical mass of people using a cryptocurrency is achieved, the central bank and government will have no option but to join in just as they eventually did in 2009 when dollarization became official.

The only difference this time is that the blockchain will ensure that the adopted digital currency will not be contaminated by any single entity as has been the case with government issued fiat currency.

There is presently no confidence in government or RBZ when it comes to managing the Zimdollar currency because regular reports of abuse or corruption are leveled against the two. It therefore makes sense to adopt a decentralized cryptocurrency like bitcoin which is anchored on a trustless publicly distributed ledger or the blockchain.

Bitcoin’s blockchain technology uses sophisticated cryptography and verification tools to ensure that the currency in circulation corresponds with what is in the books. In other words, it will not be possible to have currency that shares the same serial number in circulation as is the case in Zimbabwe.

A decentralized cryptocurrency is immutable, it cannot be replicated like what we have seen with the five dollar bills. Knowledge of this is what instills confidence.

Regulatory uncertainty

It should make sense therefore for a government to adopt such a currency system if it has a real desire to create certainty and to stabilize its economy. At the moment the opposite is happening, governments are not only shunning cryptocurrencies, but are working hard to stifle their growth.

In North America and Western Europe there are ongoing efforts at the highest levels to stop promising cryptocurrencies like Libra. However, in Asia, governments have taken a more conciliatory approach while others are even contemplating launching their own digital currencies.

In Africa, some governments have taken a wait and see approach while some have essentially ‘banned’ cryptocurrencies in their respective jurisdictions.

Zimbabweans authorities previously have had run-ins with technology companies that were involved in blockchain supported currencies but reports now suggest there has been a change of heart.

Whatever happens in the regulatory space, cryptocurrency stakeholders need not to wait for direction from unsophisticated regulators. Ordinary people must be educated about the benefits of using a cryptographically verified currency and how this per-empts governments from acting irresponsibly.

Sharing information about the promise of cryptocurrencies is best route to achieving that critical mass.

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