The Reserve Bank of Zimbabwe has announced that it will release US$10m worth of bond notes on Monday 28 November, setting off a calibrated introduction of the controversial local currency backed by a $200m facility from Afreximbank. The notes will be are pegged at a 1:1 rate with the US dollar.
“The bond notes will be released into the market through normal banking channels in small denominations of $2 and $5 to fund export incentives of up to 5% which will be paid to exporters of goods and services and diaspora remittances,” the bank said in a statement released on Saturday. “The initial release of bond notes shall be in an amount of $10 million in denominations of $2 and $2 million in $1 bond coins. The features of the bond notes will be released simultaneously with the bond notes,” the statement added.
There has been a mixed response to the bond notes, with some Zimbabweans anxious that notes could be the first step in reintroducing the defunct Zimbabwe dollar; while others are relieved that the cash crunch that has affected the country might be drawing to an end. The introduction of the bond notes represents the latest twist in the country’s dire economic affairs, which have existed for nearly two decades.
— D A N A I (@mama_danai) November 28, 2016
Zimbabwe does not have its own currency since record hyperinflation, running to over 500 billion percent inflation, rendered the Zimbabwe dollar worthless, forcing authorities to adopt a range of currencies in 2009. The US dollar, the British pound, the Chinese renminbi as well as regional currencies such as South African rand and Botswana pula were considered legal tender in Zimbabwe.
However, the multi-currency regime has become untenable – especially the wide use of the US dollar as the de facto currency – with manufacturing production costs increasing, and exports becoming uncompetitive because of the strong US dollar. As a result, Zimbabwe has been flooded with cheap imports and foreign businesses have been blamed for externalisation of money, which has led to acute cash shortages.
Incessant queues at banks, which have imposed withdrawal limits to $1,000 for individuals and $10,000 for corporates, have become the norm with many Zimbabweans struggling to withdraw the upper limit of the range.
Confidence, the real problem
Despite the potential of the bond notes to alleviate cash shortages, some in the country remain unconvinced. Many Zimbabweans are still haunted by the hyperinflationary situation that condemned the Zimbabwe dollar, and with it people’s savings and pensions, while businesses have been forced to shut down.
The Zimbabwean government has attempted to moderate the concerns of the people through publicity campaigns and even deferring the introduction of the notes until the end of 2016. However, negativity still remains, with many opposition parties and activists remaining sceptical about the new currency.
Despite the uncertainty, some Zimbabweans, wearied by the cash shortages that have gripped the country this year, hope that the bond notes could provide some relief. However, the introduction of the bond notes means that the country is entering uncharted territory because of the lack of a previous precedent, according to Thomas Masese, an economist and lecturer at the Zimbabwe-based Africa University.
“Technically, bond notes make sense but economically this is new,” he said. “The bond notes lack the most fundamental characteristics of good money, which is acceptability and store of value.”