'Bond notes in October'

HARARE - The Reserve Bank of Zimbabwe (RBZ) yesterday confirmed that the country would start using the controversial bond notes next month — in a move that sent shivers down the spines of ordinary citizens who fear the return of the despised Zimbabwe dollar and the hyperinflation era of the last decade.

Economists who spoke to the Daily News said they had been caught by surprise by the RBZ’s confirmation of the introduction of the bond notes — given the dire state of the economy, ongoing protests against the surrogate currency, the slap down that Finance minister Patrick Chinamasa had received this week from President Robert Mugabe, as well as the active court challenge against the notes by former Vice President Joice Mujuru.

The central bank had also last month appeared to indicate that it was having second thoughts aboit bringing the bond notes into circulation, after it told the High Court — while responding to Mujuru’s a lawsuit — that the surrogate currency was still at “a planning stage”.

The analysts who spoke to the Daily News yesterday also warned that the notes could trigger more economic turmoil and citizen unrest in the country, after Mugabe’s widely-criticised decision to overturn Chinamasa’s unavoidable cost-cutting measures, which included suspending civil servants bonuses and taxing their allowances.

Economists described the nonagenarian’s second humiliation of Chinamasa in successive years as shocking, adding that this would fatally dent investor confidence.

They also feared that the government would abuse the bond notes to settle its domestic debt and to help it to pay civil servants on time I with devastating short and long term consequences.

But presenting his monetary policy statement (MPS) yesterday, RBZ governor John Mangudya wholly dismissed the idea that the government would print bond notes beyond the $220 million facility that it had agreed with Afreximbank.

“It is important to note that bond notes shall not be forced on people who do not like them. The bank is addressing the concerns by planning to introduce smaller denominations of bond notes of $2 and $5.

“In addition, the bank has proposed for the setting up of an independent board to have an oversight role on the issuance of bond notes in the economy. It is critical to emphasise that the introduction of bond notes does not mark the return of the Zimbabwe dollar through the back door,” Mangudya said.

“The macroeconomic fundamentals or conditions for the return of the local currency are not yet right to do so. The issuance of bond notes has a self-control mechanism in that when there are no exports there will be no bond notes.

“At the rate at which the country is exporting and based on statistics…, we anticipate that bond notes equivalent to around $75 million will be in the market by end of December 2016,” he added.

While Mangudya was categorical in his spirited defence of the notes, economists and opposition parties alike said the surrogate currency would not work.

“From a macro-economic and financial point of view, the introduction of bond notes will be nothing short of a disaster. This is not a workable and sustainable solution to the country’s liquidity challenges.

“The Zanu PF regime will, of course, seek to pay civil servants salaries using these bond notes . Fundamentally however, these bond notes have no real value. They are just worthless pieces of paper that will lead to a massive shortage of essential commodities because most of our goods are imported,” MDC spokesman Obert Gutu said.

“You need hard currency to import food and other essential goods into the country. Civil servants will resist payment of their salaries in worthless bond notes and the resultant effect will be unprecedented political and socio-economic upheaval.

“Whether or not the RBZ governor will establish a board to monitor the use of bond notes is neither here nor there. We have to cure the disease and not just hurry to cure the symptoms. Bond notes will be a spectacular flop,” he added.

Gift Mugano, an economics lecturer at the University of Zimbabwe (UZ), was among the experts who warned that the bond notes could trigger chaos in the country.

“There will be capital flight and even international finance institutions will not lend money where there is such policy inconsistency, where the governor initially said it was about change when he first introduced bond coins, then changed later to say it was to ease the cash crisis and now it’s about export incentives.

“That is why you even see the current panic withdrawals in banks because nobody trusts him. Besides, the moment you see yourself spending time trying to explain things in business like Mangudya has been doing since he came up with the bond note policy, then you must know you are losing the war.

“He is only putting lipstick on a frog hoping it will become beautiful, it won’t. The resistance by the market will be massive,” Mugano told the Daily News.

Responding to Mujuru’s lawsuit last month, Mangudya described her court application as both “premature and ill-founded”, adding, “Indeed bond notes, outside of a policy announced by Fourth respondent (RBZ), are still at planning stage.

“At no point has the (Reserve Bank) stated that bond notes are bank notes or indeed currency as defined in our laws, in particular the (Reserve) Act and the Bank Use Promotion Act (chapter 24:24).

“The entirety of applicant’s (Mujuru) action is premised on bond notes constituting bank notes and, or currency when in fact there is absolutely no basis for reaching this conclusion,” Mangudya said then.

Mujuru had argued that bond notes were not provided for under the RBZ Act, adding that despite them being said to have the same value as the United States dollar, they were bound to depreciate in value.

“Money is property and a bond note, not being money, can never substitute money. There is therefore an infringement of the right protected by Section 71(2) of the Constitution to the extent that holders of foreign currency will be forced to use or hold bond notes in the place of their money.

“Whatever the respondents may seek to say about the bond note, it is clearly a disguised Zimbabwean dollar that is being introduced through the back door. The law does not allow a back door approach. If they wish to re-introduce the Zimbabwean dollar they must follow the law and call it by name given its demonetisation.

“Just like the bearer cheques of the period before 2009, bond notes will not be worth the paper on which they will be printed, but will make the poor poorer as they will be made to lose the little valuable assets they have, such as livestock, to the privileged few who will be in possession of worthless bond notes,” Mujuru said.

The fears of the country receding into the hyperinflationary era of 2008 were heightened this week by Mugabe’s irrational decision to reverse the belt-tightening measures which Chinamasa had announced during his mid-term fiscal policy review statement last week — without offering any viable alternative measures of his own.

The increasingly frail nonagenarian, the only leader Zimbabweans have known since the country gained its independence from Britain in April 1980, is facing the biggest challenge to his 36 year rule.

Since the economy began experiencing serious turbulence, including witnessing banks running out of cash, the government is under growing pressure as angry Zimbabweans have mounted seemingly unending demonstrations.

Comments (9)

"SHIVERS down the spine of ordinary citizens". The Bond Notes issue is not to be understood, articulated or made to work by ordinary citizens but by students in universities, colleges and high schools. During Rhodesian days Ian Smith would address the nation on radio and television declaring that Africans would never rule not in a thousand years. Shivers went down the spines of ordinary Africans but for us students then, it presented a challenge to prove that things would work differently despite the shivers. Every generation has its own battles, our students are learning everything about economics, politics, business, production, engineering, chemistry, banking and finance, etc. It is their challenge to make the Zimbabwean economy work and the African economy at large. First, students must embrace the bond notes and make them work, then advise on how the Zim-Dollar should be linked to the rest of economic activities especially to productivity. You students you are learning all about this, put theory into action and forget about your lecturers, some of them were fired from industry because they could not apply what they talked about whilst some are on Ian Smith's (NGO) payroll. You are the leaders of tomorrow and for how long will Africans be saying,"YES Sir!" to whites and foreigners?

ADF - 16 September 2016

The broke zanu pf government have gone into overdrive mode. Its the most ridiculars, crazy way of managing economic and financial matters. Printing and issuing bond notes backed by a credit facility. Using US dollar to manufacture a copy or a pirate US dollar. What's next farmers delivering water in milk packets insisting that it is milk and its backed by milk stored in cows that are grazing at a farm.

X-MAN IV - 16 September 2016

All Zimbabweans.....which do you want to adopt your own Zimbabwean Currency?......i do not see any problem using Bond Notes...as so far you already using Bond Coins......why you trying to chase away the Bond Notes?......these Notes are Equivalent to the US$....DO NOT BE FOOLS ZIMBABWEANS...WHO IS FOOLING YOU?................

silungsani ndlovu - 17 September 2016

Our leaders should be experienced enough. i thought the 1998 situation helped them. definately we are backtracking on our economic rebuilding. this bond introduction is certain to chase away investers.

BEN - 17 September 2016

If, and only if the Bond Notes have authorisation by the Governor of the Federal will they assume any value. RBZ have no authority over surrogation of US dollar by any means. What Mangudya is doing is just Counterfeiting a hard currency of another country.. He has to be sued by the US Federal Reserve.

frankly - 17 September 2016

How can Mangudya s Reserve bank sign on another country's Instrument of value.(The USA). Its simply unheard of. By its design, the Bond note is to carry " RESERVE BANK OF ZIMBABWE" On a currency of the Federal Reserve? Sure? Unless the US Federal is unaware that they currency is being contaminated by a recless regime will they keep silent on this issue.. Mangudya is just exposing our country to litigation..another liability!!

frankly - 17 September 2016

I totally disagree with the introduction of bond notes. If anything positive maybe it is the interpretation that in this comatose economy there are brains which seek to move or achieve something. We appreciate the effort but until Mugabe goes these efforts are wasted. The Mugabe risk is greater than any positive elements in this desperate measure. When Bob goes this economy will rise again

Viva Unidade - 17 September 2016

Since its Mangudya s idea bond notes idea may not be reversed as soon as they are out in October.If it was Chinimasa idea I wuld know forsure to watchout ,some cabinet rejection at the last hour.

viola gwena - 18 September 2016

the introduction of bond notes i think its a great idea because what people have in mind is not actually what is going to happen after the bond notes have started circulating. I think its a way for our nation Zimbabwe to rise again such that we will be able to boost our economy as this will improve out industries locally hence improving our BOP position. As a nation we need to support the bond notes and have a positive mind that our economy will get back to what it used to be

great economist - 5 October 2016

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