Reports of a Coup Cause Bitcoin to Reach New Highs in Zimbabwe

The southern African nation of Zimbabwe has already made a name for itself on the cryptocurrency map of the world, as a country where Bitcoin fetches a substantially higher price than any other part of the world. Already in September the price for one Bitcoin was reported to be well over $10,000 inside the country, at a moment the rest of the world was still pricing the digital currency between only $6,000 to $7,000.

The heightened demand for cryptocurrency in Zimbabwe can be traced back to an acute economic crisis the country endured in 2008 – which itself was a culmination of years of government corruption, incompetence, and associated economic mismanagement. The crisis gutted and practically destroyed the already weak Zimbabwean dollar, leaving the country with no currency of its own. The government resorted to officially proclaiming the US dollar as the official currency of Zimbabwe, a move some observers found ironic for a regime that has made a career out of decrying US “imperialism.”

However the seemingly sly move was not able to help the situation that much, as being under US sanctions meant the country is not allowed to legally import or utilize US currency. Because the Reserve Bank of Zimbabwe can not print US dollars itself – only the US Treasury can – Zimbabwe has to rely on US dollars that have to be physically smuggled into the country. This situation has produced a severe cash shortage, to the point that even people that have US dollars in their bank account (in electronic form) can not take it out of the bank in cash form – as there is simply a physical lack of cash.

Bitcoin provided Zimbabweans with a viable alternative. Digital currency proved to be an excellent option in this cash-hungry economy – providing merchants and private citizens with a medium through which to settle their transactions. Because Zimbabwe’s unique situation, its demand for cryptocurrency has far surpassed that of any other country. It is in fact this uniquely high demand within the country, that caused Bitcoin to be sold at such a high premium as compared to other parts of the world.

As impressive as the price difference was, nothing could have prepared observers of the crypto market for the events and price changes of this week, as unconfirmed reports of a possible military coup began to filter out of Zimbabwe on Tuesday. The situation became even more confusing on Wednesday morning after the spokesman for the Zimbabwean Armed Forces – Maj Gen SB Moyo – emphatically denied in a live broadcast on state television, that a coup had taken place and instead only confounded the situation by claiming that far from being a coup, the Armed Forces are carrying out an operation “ … only targeting criminal elements around the President.” Mr. Moyo went on to give assurances of Mr. Mugabe’s safety, declaring that him and his family are: “… safe and sound and their security is guaranteed.”

As Wednesday progressed, reports leaking out of the country indicated that the Armed Forces were taking positions in the capital – Harare and that soldiers have sealed access to the parliament building and other government offices. Access to the president’s official residence is also reported to be blocked by troops as Mr. Mugabe is rumored to be placed under house arrest.

The alleged coup did not materialize out of thin air, as in the weeks prior, Zimbabwe was in the midst of a power struggle over a potential successor to the the current head of state. This past Monday, the chief of Zimbabwe’s armed forces – flanked by other senior officers – warned that the military is prepared to “step in to end the turmoil,” if the ruling ZANU-PF party was not able to do so. The bitter dispute as to who would eventually get to succeed the 93-year-old president, has pitted his former vice-president, Emmerson Mnangagwa, against his wife, 52-year-old Grace Mugabe.

Mnangagwa, a former intelligence chief that enjoys strong support of many in Zimbabwe’s military, was sacked by Mugabe last week in a move that was widely perceived as an attempt to clear the way to power for his wife. Despite Mnangagwa’s alleged involvement in atrocities committed by Zimbabwe’s security forces in the 1980s, he also appears to be the the preferred candidate of much of the international community, where he is perceived as capable of guaranteeing a stable transition and implementing economic reforms. In contrast, Grace Mugabe who is the head of ruling party’s women’s league, is deeply unpopular and has few allies internally or, crucially, internationally.

The combination of economic ruination and more recent political turbulence caused the price of Bitcoin to skyrocket in Zimbabwe once again. As of Wednesday morning the price of Bitcoin reached as high as $13,499, according to Zimbabwe’s Golix exchange, almost double the price at which it trades in international markets. Golix, an unregulated platform that also trades other cryptocurrencies, has been allowing prices for Bitcoin to be set by local supply and demand, according to Taurai Chinyamakobvu, co-owner of the exchange.

This significant price difference for Bitcoin brings to light another interesting issue – arbitrage trading. Initially it was thought by some members of the public that the decentralized nature of Bitcoin will ensure a universality of price. However it is becoming abundantly clear that the very fact that different jurisdictions have different currency rules and tax laws, will mean at least some price difference. The result allows for something that was assumed by certain people to be only relevant to fiat currency — arbitrage trading — exploiting price differences between similar financial instruments to gain profit. As more and more different countries around the world grapple with cryptocurrency, one could expect see more of these differences in price.