The issue of bond notes has become a very contentious issue since the Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya dropped an atomic bomb in May 2016 to the general populace of Zimbabwe. He announced his intention to introduce into the market US$200 million worth of bond notes backed by the African Import and Export Bank (Afrexim Bank). This action alone sent tremors across the country, with an en masse run on deposits.
Many professionals have aired their views and opinions on the dreaded bond notes to no positive response or feedback from those at the RBZ. SMEZIM recently caught up with a prominent analyst in the field of economics to pick his brain and get his opinion and thoughts on this national issue that has created a lot of mistrust and erosion of confidence to an all time low. Unfortunately we cannot divulge our source because of running contracts with some of the stakeholders mentioned in this blog thus we shall refer to him as Joe Blogs (JB).
SMEZIM: What caused the cash shortages in the first place? JB: Our understanding is that in 2015, the RBZ utilised some bank Nostro accounts for some of its payments. This affected the ability of commercial banks to import cash. We suspect that the Nostro accounts were replaced with Real Time Gross Settlement Systems (RTGS) balances.
SMEZIM: What are bond notes? JB: For all intents and purposes they are a local currency.
SMEZIM: What is the difference between a bond note and a currency? JB: The difference is just semantics. It works and functions like a currency, so it is a currency. Remember Zimbabwe last had actual notes a long time ago. At some point in hyperinflation the country was using bearer cheques. Were they not a currency?
SMEZIM: Is any other country using a similar concept? JB:Not any that we know of.
SMEZIM: What is the objective of the bond notes? JB: To introduce a local currency
SMEZIM: Do you think enough has been done to sensitise the public on bond notes? JB: I am not sure there is need to sensitise people. They know what they are!
SMEZIM: Why has Afreximbank not publicly expressed their support of the bond notes? JB: Traditionally these institutions, like The Eastern and Southern African Trade and Development Bank (PTA) Bank and African Development Bank (AfDB) do not comment on matters that involve their clients. In this instance, RBZ is a client of Afrexim Bank.
SMEZIM: If the banking system is failing to settle Telegraphic Transfers (TTs) before the introduction of the bond notes; will it be any better afterwards? JB: Why should the situation change? The banks are failing to settle TTs because RTGS balances are not real money.
SMEZIM: If implemented correctly will bond notes alleviate the cash crisis? JB: There is no right or wrong implementation. It is a question trust.
SMEZIM: Who is funding the 5% export incentive? JB: That has never been clear and 5% per transaction annualises to a huge amount.
SMEZIM: How exactly do these bond coins and notes get their value? JB: Most fiat money gets its value through macroeconomics fundamentals.
SMEZIM: What measures are in place to stop the RBZ from printing more than that $200 million? JB: None.
SMEZIM: Isn’t it better to just release that $200 million into the market instead of bond notes? JB: It’s not wise and in any case, we are just addressing the symptoms and not the actual causes.
SMEZIM: Why not adopt Rands since SA is Zim’s biggest trade partner? JB: I would go for that informal adoption like we did the USD.
SMEZIM: Can I use it outside the country? JB: No, the international reserve currency is the USD and in some cases the Euro.
SMEZIM: Are bond notes the best plan to solve the currency crunch? JB: No.
SMEZIM: What are the official withdrawal limits? JB: Not sure any more.
SMEZIM: Is this the return of the Zimbabwe dollar? JB: Yes.
SMEZIM: What is the tenure of the bond notes? JB: Not sure.