Bond notes in sharp value fall

HARARE - There is renewed fear among both businesspeople and ordinary Zimbabweans that the country’s economy may soon hit the disastrous lows of 2008 — as bond notes continue to lose their value against the United States dollar, with the coveted greenback now almost completely unavailable on the open market.

This comes as economists have also warned of a fresh round of sharp rises in the prices of basic goods, including foodstuffs — as the US dollar continues to vanish from the market, leading political analysts to forecast renewed civil unrest.

However, Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya (pictured), is adamant that the value of bond notes is not tumbling — asserting to the Daily News on Sunday yesterday that the surrogate currency was still trading at par with the dollar.

He also dismissed strongly recent State media reports that the under-pressure central bank would soon introduce $10 and $20 bond notes to ease the country’s severe cash shortages — claims which fuelled suspicion that Mangudya was about to flood the market with the surrogate currency.

But long-suffering Zimbabweans who spoke to the Daily News on Sunday said bond notes were “definitely devaluing”, adding that many shops around the country were also beginning to reject them.

It was also established yesterday that some garages were giving preference to motorists buying their fuel  in hard cash — particularly those paying in US dollars.

An informal foreign currency dealer who plies his trade around Africa Unity Square also said he was selling one American dollar in hard cash to the equivalent of $1,30 in bond notes, meaning that the surrogate currency had lost value to the tune of 30 percent.

Economic expert Prosper Chitambara said bond notes were losing their value while US dollars were disappearing from the market because importers needed greenbacks to replenish their stock — and given the scarcity of the dollar and the demand for it, a premium was now placed on the American currency, with an inevitable parallel market emerging.

“What is causing all this is that the bond note is not internationally tradeable. If you are a business that relies on imports, you can’t use bond notes to import, which has affected their value.

“Value in this case is determined by market forces of supply and demand,” Chitambara told the Daily News on Sunday.

Another economist, Witness Chinyama, said the economy was now dominated by bond notes, which the market perceived as “bad money”.

“The good money (dollars) has been driven out of circulation by the bad money, as bond notes can’t be used to import goods.

“While at official level the currencies are still at 1 to 1, for the importer, the bond note is weaker. The dollar is now the reserve currency,” Chinyama said.

But Mangudya vehemently denied that the value of bond notes had tumbled.

“Have you seen twin-pricing in OK (supermarket) or other major outlets? We can’t talk of backdoor shops ... Go to the formal market, there is no weakening of value there ... we can’t talk of out-layers,” he said.

Asked about some supermarkets which are charging three to five percent more for goods bought using debit cards, Mangudya said: “Thank you for the information. We will use it to assist the market. It’s important what you are telling me. It’s good information”.

Former Finance minister, Tendai Biti, was among those who also said multiple exchange rates were now in existence in the market, adding that the government was effectively running “a Ponzi scheme” — a form of fraud.

“You have four sources of the Ponzi scheme. First is dollar bank balances sitting in the bank, with depositors unable to get their money. Depositors have been transacting through RTGS (real-time gross settlement) and debit cards.

“Wherever you use debit cards, it’s just transactional. We are circulating hot money, and it’s huge. We need an audit of how much money has been created through the circulation of hot money,” Biti told the Daily News On Sunday.

“The second challenge is money being deposited into exporters’ accounts. The RBZ is crediting accounts with RTGS balances. The real money is not coming out. That money is being recycled and rechannelled.

“Government has been borrowing, issuing treasury bills and using them as a source of currency. Take the RBZ debt of $1,5bn — all of it was paid by treasury bills.

“We now have billions worth of treasury bills, some of which will be redeemed as late as 2028.  Meanwhile, importers have queues ranging between one month and six months. And applications for import permits are not being processed.

“We need a change in government to restore trust. We need to start producing ... factories, mines have to start working. We need a whole raft of reforms which Zanu PF is not capable of,” Biti added.

Many economists and businesses have been pushing for the adoption of the South African rand to avoid the country plunging into an economic crisis.

President Robert Mugabe also backed Zimbabwe’s greater use of the South African when he spoke in an interview with the ZBC to mark his 93rd birthday a fortnight ago.

The nonagenarian has also since said that bonds notes are a temporary measure to mitigate cash shortages in the country.

“Bond notes are just a temporary thing. We want you to bear with us. We want you to bear with us. We wanted to adopt them for a short period,” he said.

Meanwhile, opposition leader Morgan Tsvangirai’s MDC says bond notes were “always going to be a disaster”.

“Bond notes were always bound to flop. It’s just a matter of time before the bond notes experiment blow up in our faces. We don’t see these bond notes holding sway until July this year,” MDC spokesman Obert Gutu said.

“The economy is in free-fall and our export earnings continue to decline at an alarming rate. Essentially, bond notes are nothing more than useless pieces of very cheap paper,” he added.

Cape Town-based think tank, NKC, has also said that the shortage of US dollars on the market were fuelling price spikes.

“Upward price pressures could potentially be driven by the rise in the cost of goods and services (mainly bread, cereal, seafood and oils) as a result of US dollar shortages,” it said.

Comments (15)

tingadii zvedu tichitongwa nechitunha

Tinashe - 5 March 2017

Sir Thomas Gresham who lived 400 years ago said that bad money will drive out good money. ZW is seeing this age old fact repeating itself. Hold onto your US dollars comrades and spend your bond notes first. Even our strongman leader RGM said that he does not bank cash in ZW - follow his lead if you aim to avoid starvation comrades

neslom moyo - 6 March 2017

I have said it before that before we reach mid year the USD would have vanished from the market and whether Mangundya likes it or not he is going to be forced to churn out more bond notes and the rest as they say is history repeating itself,big time inflation, scarcity of basic commodities,black market,closure of companies and eventually more retrenchments.The zanu pf government just cannot give up when it is so evident that they are clueless on how to solve the economic problems and are just clueless on what next step to take.

Janana wa Bikaz - 6 March 2017

i pray our beloved government won`t role out some of its populist policies at the expense of the economy.

eddymaseya - 6 March 2017

good money gone and the ordinary zim are left with mangudyas toilet paper

safa ngendlala - 6 March 2017

there is no dual pricing in OK or TM but have seen how they hiked their prices?

tawanda - 6 March 2017

...meanwhile reports are that the Foreign Affairs Minister, Simbarashe Mumbengegwi has "his" $5 million confiscated by the customs in the UK. His was carrying the $5 000 000 in his hand luggage. So bond notes are actually fishing baits for the "Shefus" to milk the country of hard earned Forex, leaving the masses with nothing. How can a Minister carry $5 million cash?

XG - 6 March 2017

Electrosales at Avondale is charging more for card purchases

rvnao;ria - 6 March 2017

That's how a totalitarian gvnt does to confuse the masses and continue looting the remaining resources even Bob can't stop them as he is the master of corruption,recently Mphoko said their gvnt was flooded with criminals who had abandoned their duties while concentrating on stealing look at our health sector currently doctors are demanding a living wage ,but they are being showed a middle finger and someone is being caught going to Britain with 5 million dollars in cash,mumbengegwi foreign affairs minister knows better that money laundering is a serious case,but if someone dares to ask him he will quickly point at Obert Mpofu's wealth too the rest is rhetoric cry my beloved country.

msongelwa ngonyama - 6 March 2017

Possibly the bondnotes might devalue at a later point, but certainly what is happening is something very far away from devaluation. There is more demand for cash as the USD is being mopped up and the bond notes available in limited quantities. The total amount of bondnotes in circulation is $75 million . The GDP of Zimbabwe is $13 billion. Clearly these economists are misleading people. USDs are still in circulation. Again on the issue of currencies; Zambia has its Kwacha, Japan -Yuan, China -Yuan, Kenya-Shilling, Nigeria-Naira, India-Rupee, South Africa- Rand, German -Deutsch- Zimbabwe USD (international currency) are these countries not actively engaged in international trade even when they have their local currencies. Dailynews need to improve its reporting standards and take a leaf from newspapers like Mail and Guardian which publish stories with more weight, facts and high intellectual opinion. We rely on it for information but when it publishes alarming stories instead of informative politically and ideologically charged arguments to lubricate and create a critical citizenry it loses its value.

The Economist - 6 March 2017

Remember elections are next year so this is the only way the broke dead man's govt can raise funds for brutalising the electorate thereby stealing the election once again. The doctors were brave to start the strike/stayaway but no-one realised what they were trying to ignite....docile zimbabweans. The only way out is to shut down zim again, this time for a whole week and you'll see the effects very soon. This govt can be forced out of power.

misty - 6 March 2017

@The Economist.....so what is really your point, I don't get it, if the bond notes are going to go to their true value which is zero at some point soon so does it make it any better or it only means the general public would have lost their worthwhile US$ currency that they would have utilised for trading especially importing goods from other countries, I think to try and justify the use or introduction of bond notes would anger a lot of people, like Biti is saying this is a ponzi scheme by the govt to milk poor Zimbabweans of their hard earned cash. You talk about Germany, Japan etc, all those countries have their own currencies which are actually functional, we do not have a currency of our own so managing someone else's currency will never work, especially a global currency like US$. yes the only sensible move now would be to find a way and negotiate with SA to try and use their Rand otherwise it's moto moto but we all know there are certain people who want to first milk all the US$ before any other proper mitigation. This is a govt-made crisis, purposely done for their own benefit if you want to be critical. Remember next year there are elections.

misty - 6 March 2017

What the RBZ is doing is to starve the market with bond notes in the hope that they will mantain the par value. This is unlikely to work because still the electronic funds transfers are effectively bond notes and there is no other way the these bond notes will mantain par value when the economy is running short of US$. Whats likely to happen is accelaration in the velocity of money (EFT's and actual notes). Very soon we will see torn notes because of high circulation rates and increase in prices. Whats needed is going for the Rand as the trading currency. This will stabilize prices and the economy in short to medium term.

JTS - 6 March 2017

@JTS....well said man, mangudya will definitely be forced to inject more bond notes into the system because clearly the demand for some sort of money is overwhelming but that also means fuelling inflation as these notes are not a currency and are not useful out of the country or rather are of no value really kkkk, soon most businesses will be stuck with the bond notes as exchange rates to US$ plummet and that will bring about the dreaded hyperinflation, it's coming there's no secret about it. Hyperinflation will also mean scarcity of goods, businesses or shops will stop taking bond notes only preferring US$. This was no accident folks, this was well designed by mangudya and friends.

misty - 6 March 2017

It's gonomics revisited. bond notes or bearer's cheques, it's all the same.the beneficiaries are swimming in dollars

JUST COMMON SENSE - 8 March 2017

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