Daniel Jennings, a contributor to Seeking Alpha, claims that rigid currency rules in some countries, such as China, Egypt and Zimbabwe, are pushing demand for bitcoin, boosting its price. He says national currencies may no longer be viable in some countries.
Many financial observers (Jennings cited Zero Hedge’s Tyler Durden, a financial blogger) have attributed bitcoin’s recent price rise to actions in China, where the government limits the amount of money people can transfer out of the country.
China, however, may only be the “tip of the iceberg,” according to Jennings. A similar scenario is playing out in Egypt, where the government plans to punish black market money changers to 10-year prison terms. The central bank has asked the country’s cabinet to grant it the authority to suspend currency brokers’ licenses for ignoring official exchange rates.
The Egyptian central bank is taking this action to shore up its currency, Jennings noted, which speculators are weakening. The Egyptian pound on June 9 was worth 11 U.S. cents, yielding an exchange rate of about 10 pounds to $1. The official exchange rate, according to Bloomberg, was 8.88 pounds to $1.
Egypt wants to stop its currency from becoming overwhelmed by a thriving black market for U.S. currency. Bitcoin makes it easy for people to evade the restrictions designed to support the nation’s currency.
Egypt might weaken the pound further by making it easier to deposit dollars in bank accounts, Jennings noted, which would make it even easier for citizens to buy bitcoin.
While the country’s central bank is concerned about inflation, its policies are further worsening the situation by convincing citizens to get rid of their pounds fast. Low oil prices and a dependency on tourism are also weakening the currency. Terrorism fears and a weak European and Russian economy are hurting tourism.
The situation is even worse in Zimbabwe, where the currency is so weak that the government allows people to use other currencies, including the U.S. dollar, the euro, the South African Rand, the Chinese yuan and the British pound sterling. The central bank plans to introduce a bond note pegged to the U.S. dollar, according to Bloomberg. Hence, the country is admitting its currency is worthless.
The bond note scheme is not likely to work since South African companies refuse to accept the paper money the Zimbabwe government issues. They only accept hard currency from Zimbabweans.
The Zimbabwe central bank currently imports nearly $40 million a month in U.S. dollars to pay its bills. The measure is only a stopgap since the government cannot pay its bills.
Confidence in the Zimbabwe currency is so bad that the president of the nation’s bankers association suggested the government scrap the Zimbabwe dollar and adopt the rand. Charity Jinya even suggested the policy to the country’s parliament, according to Bloomberg.
Such scenarios could set the stage for an explosion in bitcoin’s value. Key takeaways for investors and traders are as follows:
Under such circumstances, the value of currency alternatives will skyrocket. Especially currencies that are easily transferable like bitcoin.
Bitcoin’s price could reach $1,000 or more next year.
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Last modified: March 4, 2021 4:49 PM