Sun, Nov 19, 2017 - Page 15 News List

Bitcoin emerges as crisis currency in failing economies

The cryptocurrency is becoming the preferred way of payment for people living in politically unstable countries, where confidence in institutions is shaky and local currencies are vulnerable to inflation

By Rob Urban  /  Bloomberg

People wait to withdraw money outside a bank in Harare, Zimbabwe, on Wednesday.

Photo: Reuters

About a third of the customers queuing at La Maison du Bitcoin’s teller windows in Paris are not speculating on the value of the cryptocurrency. They are sending digital money home to Africa.

“In many countries in Africa, there are far more cellphones than bank accounts,” La Maison cofounder Manuel Valente said. “For bitcoin, all you need is a phone.”

Zimbabwe, where the price of bitcoin spiked to double the international rate after this week’s military takeover, shows JPMorgan Chase & Co chief executive officer Jamie Dimon, UBS Group AG chairman Axel Weber and other cryptocurrency skeptics where the real-world use of bitcoin, and possibly its future, lies.

It is becoming the preferred way for residents of failing economies to transfer money without dealing with banks, protecting their savings from political turmoil and avoiding the local currency when its value declines due to inflation.

There is no data on how much digital money leaves industrialized nations for the developing world. Part of the allure of electronic cash is the ability to transfer it anonymously.

However, as events in Zimbabwe have confirmed, bitcoin, the world’s most popular cryptocurrency, is most attractive when confidence in institutions falls.

“Bitcoin is a safe haven for people around the world who don’t trust their governments,” said Andrew Milne, chief investment officer and cofounder of Altana Digital Currency Fund, a US$22 million hedge fund that invests in cryptocurrency assets. “There are many countries where people are looking for an asset that isn’t vulnerable to banks blowing themselves up.’’

Zimbabwe gave up its own currency in 2009, the same year bitcoin was born, after hyperinflation led to the printing of a 100 trillion Zimbabwean dollar note. The country uses the US dollar, the South African rand and digital money.

People buy and sell bitcoins on a secure peer-to-peer network that does not rely on any government or central bank.

Trying to control it is “like trying to catch water,” said Alex Tapscott, chief executive officer of NextBlock Global Ltd, a venture capital firm that invests in start-ups involved in blockchain, the shared digital ledger that records transactions made with cryptocurrency.

Leaders of three of the world’s biggest banks have expressed skepticism about the stability and endurance of bitcoin.

In September, Dimon threatened to fire any JPMorgan trader foolish enough to bet on it.

Weber last month said that bitcoin has no intrinsic value, because nothing backs it.

Earlier this month, Credit Suisse Group AG chief executive officer Tidjane Thiam said that “the only reason today to buy or sell bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble.”

Residents of Zimbabwe and Venezuela, where the annual accumulated inflation rate is 825 percent, might disagree.

In Africa, converting bitcoin to the local currency is often handled by local entrepreneurs, either with licensed change points similar to Paris’ La Maison du Bitcoin, or, on a smaller scale, an individual with a mobile phone and a pocket of cash, Valente said.

“It’s like a walking exchange point,” Valente said. “It’s very decentralized.”

Buying goods and services with cryptocurrency is still difficult to do, but Valente said he has heard of shops that accept bitcoin opening in many African countries.

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