Zimbabwe’s central bank drip-fed dollars on Monday to a handful of commercial banks to allocate to large businesses, part of currency reforms authorities hope will ease a cash crunch that has starved the economy of many basic goods. 



Zimbabwe ditched a discredited 1:1 dollar peg for its dollar-surrogate bond notes and electronic dollars last week, merging them into a lower-value transitional currency called the RTGS dollar.



Economists welcomed the move but doubt it will prompt a swift turnaround in the southern African nation, which has grown used to currency turbulence since excessive money-printing under former leader Robert Mugabe triggered hyperinflation.



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Ordinary Zimbabweans are not yet able to use the RTGS dollars in their bank accounts to buy dollars from banks, and the bond notes &#8211; which many businesses are reluctant to accept &#8211; are still in circulation.



“The devaluation was long overdue. The economy has been in limbo and the RTGS can now play a role in boosting competitiveness,” Anthony Mandiwanza, chief executive of Zimbabwean food and dairy firm Dairibord, told Reuters.



“What is critical is that the government lives within its means and narrows and eliminates the fiscal deficit.”



<h4 class="wp-block-heading"> DOLLAR NOT WEAK ENOUGH? </h4>



The last time Zimbabwe had its own currency, a decade ago, Mugabe’s government turned on the printing presses to fund higher salaries for government workers and curry favor with the military &#8211; with disastrous economic results.



Mugabe’s successor Emmerson Mnangagwa has promised a break with the past, but many Zimbabweans are wary after his government ramped up borrowing in the lead-up to a national election last July and inflation rose to a 10-year high in January.



The central bank started selling U.S. dollars to banks at 2.5 RTGS dollars on Friday.



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Mandiwanza said banks had told Dairibord the same day that it could submit requests for dollars at around 2.5 RTGS each and that it would receive an unspecified amount on Monday or Tuesday.



A dealer at a large bank in Harare whose firm operates on the interbank market said launching the RTGS at 3 to the dollar or higher would have been better to encourage U.S. dollar sellers.



“There are a lot of (dollar) buyers … but no sellers because the rate is not high enough. What we are basically doing is allocating foreign currency to corporates but no trading is taking place,” the dealer said.



<h4 class="wp-block-heading">MANAGED FLOAT</h4>



Mnangagwa, who replaced Mugabe after an army coup in November 2017, hopes to steer the economy back to credibility and lure back foreign investors, who have also been deterred by violent security crackdowns on post-election protests last year and demonstrations last month against a steep fuel price hike.



The central bank has said it will let the RTGS dollar trade in a “managed float”.



But it has not explained how it would control the currency’s movements given it does not have significant foreign exchange reserves.



READ MORE |<a href="https://www.forbesafrica.com/economy/2019/01/14/150-percent-price-rise-fails-to-fill-zimbabwes-fuel-pumps/" target="_blank" rel="noreferrer noopener" aria-label="150 percent price rise fails to fill Zimbabwe’s fuel pumps (opens in a new tab)">150 percent price rise fails to fill Zimbabwe’s fuel pumps</a>



The currency dealer said the central bank was only selling dollars to banks that had lined up customers who had agreed to buy them.



World shares breathe easy as Trump pushes out tariff deadline 
“We have seen this before in the past and it went nowhere, the interbank system will ultimately become redundant if the Reserve Bank doesn’t allow the currency to freely trade,” the dealer said.



There are also indications that the central bank is not selling many dollars. Only around $5 million changed hands on Friday, a senior central bank official told The Standard newspaper in an article published at the weekend.



A Standard Chartered bank teller in Harare said her branch was not selling dollars to individuals yet, and downtown bank queues were no longer than normal.



On Monday, one U.S. dollar was being sold on the black market for four electronic dollars &#8211; those locked in individuals’ accounts for months due to the chronic cash shortages &#8211; compared to 4.2 on Friday, informal currency traders said.



“The big players are holding onto their money, that is what is holding rates at the moment,” one currency trader at Harare’s Eastgate shopping center said. -Reuters



-Alexander Winning, MacDonald Dzirutwe and Alfonce Mbizwo

RC110F4BE0A0

Zimbabwe Drip-Feeds Dollars To Tackle Cash Crunch

It is a hot, windy summer’s day in Road Port, Harare. A Coca-Cola can blows merrily down the street. The can has freedom many others here envy. This place is seized by an oppressive gloom. It is filled by a crowd of people pushing, shoving, shouting, buying and selling. There is dirty water flowing down the street and litter fills the potholes. Yet, this grubby place is seeing more trade than Zimbabwe’s biggest banks. Here, the black market is king and the new bond notes are pawns that can be sacrificed.
“The bond notes came recently and we are business people so we have already seen an opportunity to make a bit of money. We don’t see bond notes as having any sort of value, if you have 100 bond notes, I will give you US$70,” says Tapiwa Makoni, an informal money trader.
The Reserve Bank may say bond notes are 1:1 to the US dollar; the free market says no.
“People are already getting desperate for US dollars, especially when they are traveling out of the country. They are happy to get any real currency from us at whatever rate,” he says.
It all began in May, when the Reserve Bank Governor, John Mangudya, announced the bond note. Mangudya argued the notes would ease the cash crisis that saw the US dollar become scarce. It was going to come in gradually.
“The Reserve Bank has established a US$200 million foreign exchange and export incentive facility which is supported by the African Export-Import Bank to provide cushion on the high demand for foreign exchange and to provide an incentive facility of 5 percent on all foreign exchange receipts, including tobacco and gold sale proceeds,” says Mangudya.
The bond notes don’t seem to be helping much; as they too are restricted. The withdrawal limit of bond notes is $50 per day and a $150 per week.
Despite the introduction of the bond notes – that were touted by authorities as a solution to the liquidity crisis – there seems to be little improvement.
“There is a shortage of bond notes and there seems to be less US dollars on the streets. We used to get US$100 a day, but now my bank gave me only US$50 and 25 bond notes. The money is not enough because I need cash for my buying and selling business,” says a Harare trader who refused to be named.
Neville Mandimika, Africa Strategist at Rand Merchant Bank, says the bond notes are non-convertible.
“It is by decree that it is 1:1. The problem we are facing now is that because of the misunderstanding, fear and mistrust currently circulating in the economy, the US dollar is beginning to trade against itself because actual cash is more valuable than money in the bank because of the cash shortages. So [1:1] is of theoretical value but on the street, the market is saying otherwise,” says Mandimika.
According to Mandimika, the panic and kneejerk reaction has seen people holding on to their US dollars and moving it out of the country, which mitigates against the cash crisis being eased.
“That’s why the campaign by the authorities has been to reassure the market that this is not a fully-fledged return of the Zimbabwe dollar… The bond notes will spur inflation but not hyperinflation; at least we are not there yet… Everyone is trying to adjust.”
People have to adjust to it. If you have banked money in US dollars, you may get it in bond notes. This is not a currency and can’t be traded for another currency. Mandimika says Zimbabwe is likely to continue decelerating on a multi-quarter basis because of the debilitating liquidity crisis that continues to grip it.
“The continuation of the liquidity crunch has fueled the rise of the parallel market (US dollars are trading at a premium to the bond notes) which will likely add to the inflationary pressures. Although the latest inflation prints (November 2016), shows the year-on-year figure is still negative but month-on-month numbers suggests renewed inflationary pressure. This will likely be the trend for this year in the absence of a more permanent solution to the liquidity crisis,” he says.
It means the bond notes have been met with mounting anger and questions of legality. The city is full of protest banners mounted on brick walls, advertising billboards have #NoToBondNotes plastered all over them. Peaceful protesters are thrown into jail. One of them was Fadzayi Mahere, an advocate of the High Court and Supreme Court of Zimbabwe.
“Peaceful demonstrations are a constitutional right under Section 59. A demonstration had been organized by another entity, we believed in the cause. Unfortunately the organizers got abducted so the demonstration couldn’t happen,” says Mahere.
Once Mahere and her friends got news of the abduction, they decided to sit peacefully in the park. A handful of police came and ordered her and seven others into police vehicles.
“[Our rights weren’t read to us] in fact, we weren’t informed of the charges we were facing at that time. As citizens we are required by the law not to resist arrest so we went with them to the police station&#8230; We weren’t told about what charges we were facing until later on in the evening. We were asked to pay an admission of guilt fine and as a matter of principle, I was not prepared to admit guilt… the charges we were faced with were unfounded and trumped up,” says Mahere.
This meant spending the night in a filthy cell at the Harare Central Police Station. The tiny cell is cold and dark. There are no mattresses and blankets are infested with insects. The toilet is broken and water and urine floods the floor where some have to sleep, and no sanitary towels available.
“This is degrading to anyone. No one should be subjected to such conditions, even if you are held in cells pending trial. It was a long night. I am grateful I was in a group so there were moments of humour,” she says.
Mahere says, as unlawful as their arrest was, so are the bond notes. She says the term “bond note” is not defined anywhere in the Reserve Bank Act or the Banking Act.
“Bond note is not a term of conventional economics but an invention on the part of the Governor. It is clear that the law does not empower the Governor to create this, with respect, fictitious money,” says Mahere.
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However, Patrick Chinamasa, Minister of Finance and Economic Development, argues, in a statement, that under existing legislation, the Reserve Bank of Zimbabwe has the power to issue bond notes.
“I need to highlight that under existing legislation the Reserve Bank of Zimbabwe has power to issue Bond Notes in terms of the provisions of Section 7 of the Reserve Bank of Zimbabwe Act Chapter (22:15). The Export Incentive Scheme could also have been introduced through Section 2 of the Exchange Control Act (Chapter 22:05) which empowers the President to make regulations relating directly or indirectly to exchange transactions and the control of imports into and exports from Zimbabwe, and payments,” says Chinamasa.
Mahere, however, argues that the Reserve Bank Act authorizes issuing Reserve Bank vouchers, not bond notes, when there is a shortage of currency of any denomination to pay civil servants or employees of the state.
“The shortage must be shown to require urgent action in the interests of public order or the economic interests of the state. The justification given by the Governor for the creation of bond notes is, therefore, inconsistent with section 42B of the Reserve Bank Act. The Governor’s justification for the curious move relates to foreign exchange stabilization and an unsatisfactory attempt to ease the cash crisis.”
“Within a few months, because we are such an import driven economy, when people are trying to replenish their stock, we will see what happens, we will see what our government does when it has the scope of printing money. We have seen that in 2008,” she says.
Mahere adds that her problem is not the bond note itself but the refusal by government to address issues at their root and attend to the fundamental causes to economic problems in Zimbabwe.
According to the Reserve Bank, the Retailers Association of Zimbabwe, fuel companies, representatives of the various business associations and the Consumer Council of Zimbabwe agreed on the use of bond notes as a medium of exchange in the country. Most traders are accepting the bond notes but worry about their future.
“I hope this will not be a repeat of 2008 where government will start printing money that is actually worthless. I have to buy my stock in South Africa because no company makes the hardware I sell here. I heard some petrol stations are already rejecting it,” says Clive Moyo, a cabinet and coffin handle trader.
The argument goes on. What is clear is people are buying and selling pieces of paper they aren’t sure about.

It Is Bond Belief

As if Zimbabwe doesn’t have enough problems, in October the government will try what could be an ill-fated experiment of printing so-called bond notes.
It’s a reaction to the shortage of US dollars that have been legal tender in Zimbabwe since the Zimbabwean dollar disappeared. The shortage is so bad the banks are trying to ration dollars.
“I can only withdraw US$100 a day and that’s if I’m lucky. I have to wake up very early in the morning to queue, otherwise there will be no money in the ATM. If I come late I can find even 60 or so people queuing,” says Tukudzwa Mutasa, who lives in Harare.
The southern African country has been unlucky, to say the least, when it comes to currency. It printed its way into hyperinflation and even introduced bearer cheques that carried and outlived their expiry date. In 2008, it suffered catastrophic hyperinflation and even had a one hundred trillion dollar bill which could be exchanged for US$0.40. Almost 10 years later, it is worth more as a souvenir on eBay, where you can buy it for US$70.
This all led to the Zimbabwean dollar being ditched and the country adopting up to nine currencies from other countries.
The US dollar is king in Zimbabwe. In 2009, 49% of people used the US dollar, 49% used the rand and 2% used other currencies. In 2016, 95% of people use the US dollar.
The Reserve Bank of Zimbabwe (RBZ) says the stronger US dollar is encouraging traders to take the currency out of the country.
“I can’t take the rand because it is weak. I buy the things I sell in South Africa and have to factor in costs, so I would rather sell in US dollars so that I make a little bit of profit otherwise I would be wasting my time,” says informal trader Chipo Dungare, in Harare.
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-5299" src="/wp-content/uploads/2017/05/MTE5NDg0MDU1MDgwMzcxNzI3-300x300.jpg" alt="" width="300" height="300" />
Into the mix, in October, come piles upon piles of what many see as worthless paper. Zimbabwe will use the gold standard, which is a monetary system where a country’s currency or paper money has a value directly backed by gold, to print its own version of the US dollar, called bond notes. There is a guarantee of US$200 million by the African Export-Import Bank (Afreximbank) to back the bond notes. The scheme will also reward people bringing foreign currency to the country with a 5% incentive on all foreign exchange receipts.
Reserve Bank Governor, John Mangudya, says the bond notes, like the US dollar, will come in $2, $5, $10 and $20 dominations. This is unlikely to convince people to use it.
“This is a shakedown; casino economy presided over by dangerous clowns who don’t see beyond today. How can you explain repeating a failed experiment of 2008 of printing dollar signs and figures on bond paper and declare that as currency? Really? Do these people learn at all?” asks political economist, Maxwell Saungweme.
“This is the return of the Zimbabwean dollar by another name. It won’t work. It will crash on day one,” says a Harare-based analyst who chose to remain anonymous for fear of victimization.
Former Finance Minister, Tendai Biti, called citizens to anger.
“The return of the Zimbabwean dollar marks the gross admission by this regime that it has failed, and failed in absolute terms, and that it will drag everyone along in the plunge to abyss that now awaits this economy. It is a cynical, disrespectful and contemptuous move that has absolutely no logic, sense or justification on any rational ground whatsoever,” writes Biti on his Facebook page.
“Zimbabwe is effectively a supermarket economy consuming goods produced in other countries. In 2014, its exports were US$3.7 billion against imports of US$6.3 billion. 2015 was no better; exports were $3.2 billion against imports of US$6.03 billion.”
Promise Mkwananzi, Director of Zimbabwe Informal Sector’s Organisation, says this policy reveals confusion.
“The tragic result is that there is already panic and despondency in the country. This will cause an unprecedented decline in FDIs already at its all-time low. This will see the Zimbabwean economy continuing to suffer,” he says.
But the people running Zimbabwe believe there is no problem.
“The bond notes are coming no matter what because we are trying to solve a problem here. The media exaggerates what is going on here in Zimbabwe. They talk about protests but I don’t even know what they are talking about. It’s always business as usual here and often I have to see in the news that there was a protest,” says spokesperson of the office of the president, George Charamba.
Along with the RBZ and the government, the Employers’ Confederation of Zimbabwe (EMCOZ) is behind the bond notes, but it has reservations.
“The consultations before the announcement, if any, were less than inclusive and the confusion and fear that was created could have been anticipated and, to a large degree, reduced if not avoided. It would have given business the necessary confidence if it had also been announced whether this is a short, medium-term or long-term measure and the fate of the bond notes once they have served their purpose,” says EMCOZ president Josephat Kahwema.
What is certain is that in October the banks will be full of freshly printed paper. You’ll know for sure whether it’s worthless when you go to spend it.

Tag: Bond Notes

FORBES AFRICA SOCIAL MEDIA

Zimbabwe Drip-Feeds Dollars To Tackle Cash Crunch

It Is Bond Belief

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