RBZ to inject $300m more bond notes

HARARE - Zimbabwe will soon introduce an additional $300 million bond notes into the economy, in a measure the central bank says is meant to stimulate production and exports.

Presenting his Mid-Term Monetary Policy Statement yesterday, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya, said it was important for the country to earn increased foreign currency through exports as a way of reducing the current cash shortages.

“… The bank found it imperative to extend and enhance the export incentive scheme by $300 million under a standby liquidity support from Afreximbank.

“The standby liquidity support, which is separate from the nostro stabilisation facility, shall be used to back the bond notes that are going to be issued to monetise this subsidy scheme. As like under the $200 million facility, the bank will release the bond notes into the market on a drip-feed basis,” the central bank chief said.

Zimbabwe is currently in the throes of a biting liquidity crisis, with government hoping an increase in bond notes will boost the country’s low liquidity ratios.

To date, Zimbabwe has drawn down over $175 million from the initial $200 million Afreximbank facility to give exporters incentives and also deal with the country’s liquidity challenges, with the governor saying the present scheme has seen the country’s exports increasing 14 percent.

“Between May last year and June this year the country has generated $4,9 billion in foreign currency receipts,” he said.

Market watchers have already warned that the issuance of more bond notes could result in over-printing — bringing back fresh memories of the 2008 hyper-inflationary period — as the RBZ may be forced to monetise fiscal deficit towards the 2018 elections.

Monetised deficit is when government prints money in order to pay its deficits.

However, Mangudya yesterday said the central bank was “fiercely” guarding against this.

“We are not going to introduce higher denominations of bond notes, forget it…,” he said.

The central banker also admitted that the notes were steadily vanishing from the local market through externalisation.

With currency dealers either hoarding the notes for speculative purposes or taking the surrogate into the black market, the notes have found new homes in neighbouring countries such as Botswana, South Africa, Zambia and Mozambique, despite efforts by the Zimbabwe Revenue Authority and central bank to curb externalisation of the surrogate currency.

“We know the bond notes have been going out, people outside the country are holding on to the bond notes as a store of value because they are backed by the United States Dollar so to them it is more reasonable to store value in bond notes than in their local currency…But we have already said we are also working on ensuring this does not happen,” he said, adding that going forward, Zimbabweans were only going to be allowed to leave the country with a maximum of $2 000.

According to the central bank chief, RBZ is also in negotiations for a $600 million nostro stabilisation facility from Afreximbank to manage foreign payments.

“The fund will be available at the end of the tobacco selling season in August,” he said.

In the wake of the severity of low liquidity, the current stock of money in circulation in Zimbabwe is made up of $25 million bond coins, $175 million bond notes and multi-currencies dominated by the United States dollar at approximately $800 million, to give a total of around $1 billion, according to Mangudya.

“But all this money is in the informal sector and it is not circulating well,” the governor said.

Mangudya added that the apex bank had also increasing the incentive for Diaspora remittances, which come through normal banking channels, from three percent to 10 percent.

The International Monetary Fund (IMF) recently warned that government’s introduction of bond notes to address a relentless cash crisis was fuelling a currency black market, which had been subdued due to a multiple currency regime.

In addition, International research firm, NKC Economics (NKC) has also warned the RBZ against exceeding the $200 million maximum limit or risk plunging the country back into the dark days of 2008.

Comments (1)

Welcome back hyper-inflation!! So what is mangudya trying to achieve by printing more bond notes? Is he sincere in suggesting that the economic situation in zim can be helped by printing yet more bond notes? These guys are up to something, there's something suspicious going on there.

misty - 3 August 2017

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