A LARGELY expectant nation will today finally get clarity on the introduction of bond notes, whose planned launch next month has triggered consternation among long-suffering Zimbabweans.
Speculation swirling across the country suggests that banks could stop dispensing United States dollars to the public to make way for the dreaded bond notes once these were launched.
This would effectively seal the fate of a multiple currency regime adopted to escape a hyperinflationary crisis in 2009.
Sources within the banking sector confirmed that indeed bond notes were “on the way”, insisting these would be unveiled next month as earlier indicated by the Reserve Bank of Zimbabwe (RBZ).
RBZ governor, John Mangudya, is expected to give a review of his monetary policy today, at which he is anticipated to finally pronounce developments around the planned unveiling of the bond notes, described as surrogate currency by President Robert Mugabe.
Sources said bankers had “lost the battle” against the separation of bond notes from US dollar accounts; the central bank insists bond notes should use the same platforms and accounts holding US dollars, something one banker said would become the conduit for government’s plans to clear its domestic debt.
In other words, any bond note transaction would be treated as if it were a US dollar transaction, one source said.
Bankers had argued that they wanted separate accounts for bond notes, which the RBZ had initially said would be used as an incentive for exporters and would rank pari pasu with the greenback, but the monetary authorities insisted bond notes would be dispensed through US dollar accounts held by longsuffering depositors.
The Bankers’ Association of Zimbabwe president, Charity Jinya, said banks were working closely with regulatory authorities “to ensure that the expectations of regulators are met”.
She said once information on the size and security features of the expected bond notes become known, banks would take the necessary steps to ensure that these are incorporated in banks’ systems and procedures.
“Banks will then communicate with their respective customers on the handling of the bond notes,” she said in response to questions from the Financial Gazette.
Asked if banks would open bond notes accounts for clients, considering that these would be part of the multiple currency regime, she said: “The modalities will be announced at the time of use of the bond notes once introduced. You may be aware that currently no separate client accounts have been opened for the use the bond coins that are in circulation. There is thus no expectation that separate accounts will be opened. This will, however, be formally announced once the expected bond notes are introduced as part of the procedures for their use.”
Zimbabwe introduced bond coins a few years ago due to a shortage of small denomination coins for change purposes. These have not been dispensed to the public in the form of withdrawals, but have been accessed by retailers on demand.
Asked if it was true that banks would stop dispensing US dollar notes upon introduction of bond notes, Jinya said: “The central bank and other regulatory authorities have been at pains to explain that the multi currency system will be in operation for the foreseeable future. Given that position, banks do not expect to stop dispensing foreign currency including the US dollar because of the introduction of the expected bond notes.”
She said bankers envisaged that bond notes would “be on offer to clients on a similar basis to other currencies that may, at any time, be available to banks”.
“This position is in line with the stated position by the regulatory authorities,” she said.
The US dollar has become the currency of choice in the country since adoption of a multiple currency economy in 2009 after government ditched the local unit to escape a hyperinflationary crisis that had battered the defenceless Zimbabwe dollar, triggering widespread commodity shortages and a foreign currency crisis.
“It’s distressing,” an official within the banking sector, who cannot be named for professional reasons, said.
“I see this taking us one way,” he noted, suggesting the measures would likely ruin the fragile banking sector and the tottering economy.
Already, the RBZ has put daily cash withdrawal limits to contain a shortage of US dollar bank notes. The situation has pushed up the use of plastic money, but it has emerged that much of this did not have the backing of any real currency since it was being created through the real time gross settlement (RTGS) platform managed by the central bank.
A banker said bond notes would support the mock US dollars created by the local money transfer system, which had essentially become a form of money printing.
“US dollar transactions will become a technical term for bond notes transactions. The RBZ governor may not make the bold announcement today for fear of triggering panic in the markets, but there will be no US dollar provisions from within our local banks unless for foreign transactions,” one source said.
At his monetary policy review today, Mangudya is expected to reiterate that the multi-currency system had become dysfunctional as a result of a strong US dollar, which he said has become “more of a commodity, a safe haven currency or asset than a medium of exchange” in Zimbabwe.
He is likely to insist on the use of plastic money and the RTGS platforms for those that do not want bond notes.
Already, RTGS and plastic money usage has gone up since the shortage of US dollar notes hit the country.
In his statement highlighting measures to deal with the cash shortages in May, and at which he first announced plans for the bond notes, Mangudya said the RBZ had established a US$200 million foreign exchange and export incentive facility supported by the African Export-Import Bank (Afreximbank) to provide what he described as cushion on the high demand for foreign exchange. The facility, he said, would provide an incentive of up to five percent on all foreign exchange receipts, including tobacco and gold sale proceeds.
He said to mitigate against possible abuse of this facility through capital flight, this facility would be granted to qualifying foreign exchange earners in bond notes. The bond notes, he said, would operate alongside the currencies within the multi-currency system and at par with the US dollar.
“The Zimbabwe bond notes of denominations of $2, $5, $10 and $20 shall, therefore, be introduced in future, as an extension of the current family of bond coins for ease of portability in view of the size of the US$200 million backed facility. The facility shall also be used to discount trade related paper in order to provide liquidity for business trading operations,” Mangudya said.
At a Confederation of Zimbabwe Retailers breakfast meeting last month, Mangudya said the RBZ would not force anyone to use bond notes as it was simply “monetising the five percent export incentive without doing away with the multi-currency regime”.
“The intrinsic value of the export bonus or incentive scheme is to attract and enhance exports by Zimbabweans so that at the end of the day there is enough foreign currency in this country,” said Mangudya.
But at least two bankers confirmed bond notes would be “widely available” and would not only be used for incentives but rather to pay out depositors.
Mangudya did not respond to questions from the Financial Gazette on the issue.
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