'Allow bond notes to float freely'

HARARE - Highly-regarded economist Ashok Chakravarti has urged government to allow the bond notes to float freely so that the market can determine its exchange rate, a move he says would help reduce their externalisation.

The economist told a Confederation of Zimbabwe (CZI) retailers meeting that the recommendation, would allow the bond notes — which are currently pegged at par with the United States Dollar (US$) — to trade as an independent currency on the market.

“The country has two options, adopt the South African rand as currency of circulation within multi-currency system as it is a weak currency and non-externalisable; or, accept that the bond dollar is now a local currency and allow it to trade freely with other currencies within multi-currency basket. Let the market establish exchange rate for bond dollar,” said Chakravarti.

This comes as the notes — which were injected into the system in November last year under a $200 million Afreximbank scheme as an export incentive and touted as an anti-externalisation exchange — have made their way into neighbouring countries such as Botswana, South Africa, Zambia and Mozambique.

“The problem with the bond note in my view is the peg with the US dollar. In my opinion, government should remove the peg from the bond note; all that trading happening across the border will come back into Zimbabwe. Why should it trade outside the country when you would like it over here?” asked Chakravarti, rhetorically.

Veteran economist John Robertson cautioned that providing bond notes with an exchange rate would be disastrous.

“So far, the bond has fared fairly well in the official market, but this will go south very fast if it starts trading on its own. It will definitely crash and we will head back to hyperinflation,” Robertson said.

To date, the Reserve Bank of Zimbabwe (RBZ) has released $175 million worth of bond notes and is in the process of negotiating for a top-up of the $200 million facility with the Afreximbank.

Comments (3)

Highly regarded economist? By whom? Does this economist know that 'bond notes' are technically not money. It is a medium of exchange but lacks the other 'key characteristics' of money.

never dhliwayo - 28 July 2017

www.mamareeva.co.za

jjajjasauda - 30 July 2017

this guy is not an economist.

blah vic - 2 August 2017

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