The Early Ban
The Reserve Bank of Zimbabwe (RBZ) initially took a strict stance against crypto assets. In a statement released on December 20, 2017, the RBZ declared that virtual currencies did not have legal tender status in Zimbabwe. The central bank also issued a public warning, highlighting the potential risks associated with crypto assets, including money laundering, terrorism financing, tax evasion, and fraud. It emphasized that the use of and trading in crypto assets were not regulated by the country’s laws, and individuals participating in crypto asset transactions did so at their own risk.
The Ban on Banking Services
In May 2018, the RBZ issued a circular that directed all financial institutions in Zimbabwe to refrain from using, trading, holding, or transacting in virtual currencies. The circular also prohibited financial institutions from providing banking services to entities or individuals dealing with virtual currencies. Financial institutions were given a 60-day period to terminate any existing relationships with crypto asset exchanges. This policy effectively cut off the banking services for crypto asset-related activities in the country.
Changing Course: A Regulatory Sandbox
In March 2020, the Zimbabwean government shifted its stance on crypto asset regulation. Josephat Mutepfa, the Deputy Director for Financial Markets and National Payment Systems of the RBZ, announced a new approach during the Sound Prosperity Economic Forum. The government had begun developing a fintech framework, intending to create a regulatory sandbox for crypto asset companies. This marked a significant shift from the previous ban to a more regulatory approach to crypto assets.
The sandbox concept would allow crypto asset companies to operate under a controlled environment and be evaluated for their compliance with existing financial regulations. The sandbox would serve as an experimental zone where both the government and crypto asset firms could work together to develop the industry. This change in policy indicated the government’s acknowledgment of the benefits of regulating rather than banning crypto assets.
Taxation of Crypto Asset Profits
In Zimbabwe, any profits generated from trading crypto assets are subject to capital gains tax. This means that individuals and entities making profits through buying and selling crypto assets are required to pay taxes on those gains. The rate of the capital gains tax may vary depending on how long the assets were held before being sold. Profits from mining or staking crypto assets are also subject to taxation. Keeping detailed records of all crypto asset transactions is crucial to accurately report these profits when filing taxes.
The Quest for a Gold-Backed Digital Currency
The Reserve Bank of Zimbabwe is also exploring the possibility of introducing a gold-backed digital currency to stabilize the local currency, the Zimbabwean dollar (Zim dollar). The central bank intends to create a form of electronic money backed by the country’s gold reserves, held by the bank. This digital currency would allow individuals to exchange their Zim dollars for the gold-backed token to mitigate the volatility of the local currency, which has faced significant devaluation over the years.
A Regulatory Sandbox: A Positive Step
The creation of a regulatory sandbox for crypto asset companies marks a significant shift in Zimbabwe’s approach to the crypto asset sector. The government recognizes the potential of crypto assets and digital assets, particularly among the younger population. By creating a controlled regulatory environment, the government aims to foster responsible growth in the industry, boost trust, and address adoption barriers.
Marius Reitz, the general manager of Africa for the Luno crypto-exchange platform, considers the regulatory sandbox a positive development. He believes it will bring more clarity and protection to the crypto asset sector and facilitate a strong relationship between crypto asset businesses and regulators, ultimately promoting industry growth.
A Way Forward
The Zimbabwean government’s desire to legitimize the crypto asset industry aligns with its broader efforts to stabilize its currency and improve its financial sector. The creation of a cryptocurrency regulatory sandbox indicates a willingness to regulate and protect the growing crypto asset market. While Zimbabwe may still have a long way to go in crypto asset regulation, it appears to be on a path toward embracing digital currencies.
The potential for asset-backed digital currencies, such as a gold-backed digital currency, could offer a unique solution to the country’s economic challenges, provided they are implemented effectively.
In conclusion, Zimbabwe’s journey in crypto asset regulation reflects the global evolution of governments’ approaches to cryptocurrencies. As the country explores regulatory measures, it joins the ranks of nations grappling with the need to balance innovation with financial security and stability in the digital age. The outcome of these regulatory efforts will likely have a significant impact on Zimbabwe’s financial landscape and its citizens’ engagement with crypto assets.
