In recent times, cryptocurrencies are now challenging the monopoly of a Government by providing a currency that is not regulated by any central bank. By their very nature, cryptocurrencies by operation circumvent the control of a central bank.

People advocating for digital currencies rely on the fact in principle, Governments may abuse the monopoly they are given. In the Zimbabwean context, legislation controlling the exchange rate has been heavily criticised and the market actually has its own parallel exchange rate.

In the face of crippling inflation, other jurisdictions have been considering the introduction of bit-coin as the legal tender of their countries. Countries such as Cameroon and the Democratic Republic of Congo (DRC) — are reportedly planning to adopt cryptocurrency and block-chain solutions powered by The Open Network (TON). Separately, Cameroon is considering issuing a national stable-coin that is based on the same block-chain network. These “govcoins” have become so phenomenal especially with the Covid 19 pandemic.

Before asking what the RBZ is planning to do in light of such developments in other countries in Africa, is there need for the RBZ to panic? Can the RBZ turn a blind eye to these currencies?

Are cryptocurrencies a threat to the central bank?

In short, yes. Cryptocurrencies are a threat to the central bank because they provide “private” money. Fiat money inherently relies on the central bank because it is not backed by mineral deposits but is backed by the Government which issues it. Cryptocurrencies on the other hand are created on a server and recorded in a publicly available ledger.

This means that if people transact using cryptocurrencies, a central bank cannot exercise its regulatory power on such transactions.

The adoption of these cryptocurrencies is rising daily across the world. More than 6,000 cryptocurrencies are now in use across the world and one in ten people have invested in them. This threatens the central bank in that people will transact in currency that is not regulated by the central bank.

This impending threat shows that banning the use of cryptocurrencies is futile because it constitutes ignoring the problem and this will not stop people from using cryptocurrencies.

The central banks across the world are in agreement that there is a need for an alternative digital currency for people. The Deputy Governor of the Reserve Bank of Zimbabwe conceded that there is a need for the central bank to provide an alternative digital currency. Among many other things, the Deputy Governor reasons that such currency will ensure better money transfer services outside Zimbabwe plus solve the liquidity crisis in Zimbabwe.

How are the RBZ and other central banks across the world planning to respond to this threat?

Central banks, RBZ included, have settled on what is called a central bank digital currency (CBDC). A CBDC is an electronic form of central bank money that citizens can utilize to make digital payments and store value. A CBDC is a digital currency that is issued by a central bank and is universally accessible.

The advantage that the CBDC has over cryptocurrency is that, like fiat money, it is backed by a government and is less volatile compared to the cryptocurrencies. It can be used by anyone because it can be issued as legal tender making it universally accessible. However, it is still digital currency.

In the context of Zimbabwe, the use of digital money has been done by companies and the central bank has been having the burden of cracking down on them with penalties owing to non-compliance. Having a CBDC might be advantageous to the Government because it is a digital currency within their control and the profits realised can be used for the good of the public.

Across the globe, the pressure for governments to adopt a CBDC is strong, as the market for private e-money is on the rise. If it becomes mainstream, beneficiaries are at a disadvantage because e-money providers aim to maximize their profits instead of the general public. Issuing a CBDC would give governments an edge over the competition from private e-money.

On the date of writing this article, the Deputy Governor stated that the RBZ and already put together a Research Unit to research how to introduce the CBDC. This shows that the RBZ is intending to take this route. RBZ is not alone, 85% of central banks across the world are conducting research into the CBDCs and other jurisdictions like Nigeria, Bahamas, China, and Sweden have started introducing their digital currencies.

What is the potential impact of CBCSs on Domestic Banks, the Central Bank (RBZ)?

Domestic Banks

If the central bank issues a digital currency and provides interest on it, then the main business activity of domestic banks, which is deposit-taking and giving loans with an interest, will be undermined.

Digital currency means there are fewer resource deposits, which in turn limits the domestic bank’s ability to provide credit to customers with interest. In that sense, the operating model of domestic banks is under threat if the central bank issues the digital currency itself and with interest.

Central Bank

CBDCs introduce significant operational shifts for the central bank. The central bank will no longer incur expenses for printing, transporting, and managing cash because the currency is digital.

CBDCs have implications for every data-driven element of finance. These include managing customer data which is used to access the digital currency and tracking illegal activity across billions of transactions recorded. The detailed audit trail that comes with a digital currency can help tackle some of the central banks’ biggest challenges. An example of such challenges is illicit financial flows from the country.

However, these benefits come at a high cost for a central bank. The cost is both financial and also behavioural. The central bank will need to invest in the equipment and also secure genuine buy-in from their customers (which is the public) and their staff. This might take time and would require huge investments. That being said the benefits are worth the effort. CBDCs are currently the option of competing with cryptocurrencies (private e-money)


Cryptocurrencies present a unique challenge to the central bank which threatens the essence of a central bank and government to control the currency of a country. Although at the research and pilot stage at the time of writing, CBDCs are currently the best option for guarding the monopoly of the central bank in controlling a currency.

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