Dump bond notes, RTGS: Hanke

HARARE - Zimbabwe should dump its discredited bond notes and real time gross settlement (RTGS) system and re-introduce the United States dollar as a way of solving the country’s fragile currency situation and reduce inflation, economist Steve Hanke has said.

The southern African country introduced the surrogate currency, which government pegged at 1:1 with the United States dollar, in November 2016 as an export incentive to ease an acute cash crisis. However, the bond notes — guaranteed by the Afreximbank — have lost value to the greenback and are trading at 1: 4,5 on the parallel market.

This has seen official inflation peaking at 42 percent in December 2018, after prices of basic goods and services skyrocketed in October last year when government introduced a two percent tax.

Hanke, who rose to fame when he correctly predicted Zimbabwe’s hyperinflationary period in 2008, said there was need for the government to instil confidence in the economy by extinguishing the controversial currency.

“The government must announce that it will not rob the holders of bond notes and RTGSs. They were issued at par to the United States dollar, and they will be redeemed at par by the issuer: the Zimbabwean government.

“The redemption at par will take place over a five-year period. During this period, the government will redeem the bond notes and RTGSs by accepting them as payment for taxes or any other obligations,” he said.

The John Hopkins University lecturer indicated that if credible, the redemption policy announcement will cause the value of the bond notes and RTGSs to climb towards par, creating much-needed liquidity, as well as solvency, in Zimbabwe’s financial system.

“Zimbabwe’s monetary death spiral will come to an abrupt stop. To run down the stock of New Zim dollars to 2016 levels, $1 billion per year should be redeemed over five years. Then, the patient will be deemed to be in remission, and a clean bill of monetary health can be issued,” he said.  

Zimbabwe abandoned its own currency in 2009 after hyperinflation reached 500 billion percent, according to the International Monetary Fund. The United States dollar has dominated daily transactions since then.

But due to widespread shortages of dollars, most people must now use a government-issued surrogate currency called bond notes, which are supposed to be equal to a United States dollar, as well as electronic money. Both are quickly devaluing against the dollar on the black market.

Some businesses such as pharmacies are now only accepting United States dollars in cash. 

In the fuel sector where the government controls prices, fuel companies are forced to accept bond notes and electronic money for petrol and diesel at the official exchange rate.

The government then provides the firms with dollars to import the products, but the government has not allocated firms adequate funds to import sufficient fuel for the country, leading to the shortages.

Comments (6)

Using a fake currency(bond notes) that is not recognised anywhere in the world.

widzo - 22 January 2019

And to my learned fellow Professor, where will the US dollar come from?

willo - 22 January 2019

There are plenty of US dollars outside the official system. Go to most shops and u see people buying using US dollar. How many street forex dealers are buying cars and making a better leaving as opposed to formal employment. They are trading forex. Mugabe was under worse sanctions that these muderers but dollarisation was sucessful until they decided to steal it from the povo and the povo removed it from the banks.

Wilo Longomba - 22 January 2019

jus use SA RAND

Glenz - 22 January 2019

US Dollar for USA; British Pound for Britain; Japanese YEN for Japan; Zimbabwe Dollar for Zimbabwe this difficult for White god (idol) worshipers to understand.

ADF - 22 January 2019

i fear that fuel prices will sky rocket in the immediate future.or whatever this market controlled currency rates if left to trade lower than the street rates, people are likely going to buy from the bank later to sell in the streets.

Frank Sinoti - 23 February 2019

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