Bitcoin seems to be a cryptocurrency that works as a hedge against economic and political crisis. In South Africa, Bitcoin is surging since the new elected government is taking some controversial measures. Among the new policies we find an intention to modify the constitution and print money to “end poverty” and make South Africans “millionaires.”
South Africa Embraces Bitcoin
According to LocalBitcoins, South Africa has experienced an increase in the volume of Bitcoin transacted. That may be related with the latest political and economic policies that the new government wants to implement.
South Africa, as well as many different other countries in the African continent, is planning a land reform that is worrying enterprises and civil society. The topic is very important for South Africa due to the racial conflicts that have occurred in the country.
Ramaphosa’s political group, the African National Congress (ANC) party, has proposed to change the constitution. The intention is to take the white-owned property without any compensation for it, and redistribute it to black citizens that do not have farmland.
There are several important banks and global credit agencies, like Moody’s, that are very worried about this situation. According to the president, South Africa’s economy would not be affected by any specific measure taken by these institutions.
“President Ramaphosa reaffirmed that accelerated land reform will unfold within a clear legal framework and without negatively affecting economic growth, agricultural production and food security,” explained the presidency.
This is one of the various reasons that are pushing South Africans to move towards Bitcoin cryptocurrencies. But there is another reason that is as important as this one. Or even more. Inflation.
South Africa’s Plan to Magically “end poverty”
Different countries in the world have taken various measures in order to end poverty. Public policies range from building infrastructure to reduce taxes. Some policies have been more effective than others, but there is one that has proven to be ineffective and harmful for the society. We are talking about printing money and “give” it to the poor.
Nhlanhla Nene, former Finance Minister and head of National Treasury, commented about that:
“South Africans continuing to be poor when we can print more money to ensure that everybody has it. Our people are poor because there is a shortage of money in the country. It’s not the shortage of jobs that makes people poor, it is the shortage of money. We have paper and ink, so we will print more money and five it to the poor, and make all of them billionaires if that is possible.”
Of course, this policy will not reduce poverty, but it will, for sure, make people poorer. Printing money will increase inflation, and inflation will create a turbulent economy. The poorest individuals in the country will be the ones that will be affected the most by these “magic” measures.
But this is something very important for Bitcoin and cryptocurrencies. If people are not able to save in fiat currency, they will move towards a cryptocurrency that is deflationary and that will work as a store of value. Some other cryptocurrencies will work as a means of payment and individuals will have the possibility to improve their well being in the middle of an inflationary crisis.
Venezuela and Zimbabwe, two countries that have applied hyperinflation policies to “help” their citizens, ended up with more poverty than before. Almost 90% of Venezuelans and over 80% Zimbabweans are poor. Indeed, South Africa’s neighbor has printed a hundred trillion dollars’ banknote that was worth nothing. It was able to make its citizens trillionaires, but it did not help that much.
According to Mati Greenspan, a market analyst at eToro, South Africa has increased its demand for Bitcoin since the beginning of 2017.
“In South Africa, the number of new users trading bitcoin through eToro rose by 671% from January to the end of November last year over the same period in 2016, more than the 574% overall growth. The best thing to do in a financial melt-down is to diversify your portfolio. Adding a small amount of crypto-assets can add exposure to something that is generally unconnected to the rest of the markets.”
Bitcoin and other cryptocurrencies work in different way than fiat currencies. There is no government that controls them, and there are no possibilities to create more Bitcoins. And as Bitcoin has a limited supply, its value will possibly increase in the future as demand increases.
If there is a crisis in one country, or an international turmoil, then, Bitcoin could increase its price and help people defend themselves from governments and inflationary monetary policies.
If we go further, there are different countries in Africa that moved towards Bitcoin. According to the Wall Street Journal, Sudan and Kenya are some of the countries that are embracing virtual currencies in order to avoid instability. Something that South Africa is doing now.
Mohammed Mahgoub, a Sudanese web developer commented about this:
“The main attraction in Bitcoin is the ability to transfer money without any restrictions or going through a bank, this was very important as there were US sanctions imposed on Sudan.”
Indeed, in these countries, Bitcoin was traded at premium prices. For example, in Zimbabwe, Bitcoin was traded at 260701.10 ZAR ($22,000 dollars) compared to 177750.75 ZAR ($15,000 dollars) in most of the international cryptocurrency exchanges.
South Africa may be moving towards the same trend that other African countries have decided to take before. The experience shows that it may not be the best political and economic policy to be taken. In countries like these ones, Bitcoin and other cryptocurrencies will help people to store value and avoid economic fluctuations or crisis.
Furthermore, the deflationary nature of Bitcoin and cryptocurrencies is one of the most valuable aspects of these digital currencies, which have been attacked several times due to the “lack” of intrinsic value.
The South African rand will start to lose its value as soon as the government decides to print more banknotes so as to “end poverty.”