‘$300m bond notes also destined for black hole’

‘$300m bond notes also  destined for black hole’
Barclays Bank Zimbabwe managing director, George Guvamatanga

Barclays Bank Zimbabwe managing director, George Guvamatanga

By John Kachembere
Business Editor

BARCLAYS Bank of Zimbabwe managing director, George Guvamatanga, says the $300 million new set of bond notes to be introduced by the central bank will not help reduce the current cash shortages.
“I think the reality of it is that if we don’t address the fundamental problems in the economy, the new bond notes will just disappear to where the other $200 million went,” he said.
“Even if we have $1 billion in United States dollars and $1 billion in bond notes, they will still continue to disappear if we don’t address the economic fundamentals and people’s rent-seeking behaviour,” Guvamatanga told delegates attending a mobile money and digital conference held in the capital last week.
His comments came a day after the Reserve Bank of Zimbabwe announced that the central bank would soon release $300 million in bond notes, under a facility funded by Egypt-based lender the African Export-Import Bank (Afreximbank), bringing the total value of bond notes in circulation to $500 million.
Market experts, however, say the increase would bring the amount of bond notes in circulation to more than half the physical United States dollars left in the country, raising fears that the bond notes are paving the way for the return of the Zimbabwe dollar, which was withdrawn in 2009 after hyperinflation rendered the local currency useless.
According to central bank statistics, Zimbabwe has about $800 million in physical United States dollars and other foreign currencies in circulation, but the International Monetary Fund estimates that the number of United States dollar notes could be as low as $600 million.
The country has been losing the greenback at an alarming rate since May 2016 to imports, illicit financial outflows and general hoarding of the currency due to its strength against depreciating regional currencies.
In an effort to stimulate production and encourage exports, the central bank late last year introduced the bond notes. The currency — pegged at par with the United States dollar — is now circulating and trading in neighbouring Botswana, Mozambique, Malawi and South Africa’s black markets.
Guvamatanga said the bond notes are “foreign currency” due to their artificial value which is equitable to the greenback and people in neighbouring countries were using them as a store of value.
“Until such a time when we can export more and have the correct pricing or valuation of money, we will continue to have cash crisis,” he added.
An NMB Bank executive, Lloyd Kazunga, concurred with Guvamatanga and said Zimbabwe is suffering a confidence crisis.
“The value of what we are purporting to be money has to be stable. The real value of bond notes must be proven in terms of how they behave when buying in the shops,” he said, giving reference to the current three-tier pricing system of real time gross settlement (RTGS) credit cards and cash.
According to the central bank, the discrepancy or mismatch between the supply and demand for foreign exchange is causing cash shortages, resulting in a thriving parallel market.
“The scarcity premiums or discounts are thus a symptom of excess demand for foreign exchange. It is, therefore, not the mediums of exchange — Unites States dollar cash, bond notes, plastic money or the RTGS — that cause premiums in the parallel markets or the multi-pricing system,” RBZ governor John Mangudya said.
“It is the disequilibrium or mismatch between the domestic quantity of money (local dollars) and the supply of foreign exchange (foreign dollars) that cause cash shortages and, resultantly, the scarcity premiums and the multi-pricing system.
“This means that the market views the intrinsic value of the dollar in Zimbabwe being lower than the foreign dollar. In coming up with solutions to cash shortages, focus should therefore be on the sources of money creation and its utilisation and not on the mediums of exchange,” the central bank chief said.
A CABS executive Godwin Kanongovere said the country’s academia must develop permanent cash solutions that are relevant to the current situation.
“The present cash crisis presents opportunities for us as a nation to utilise technology and find ways to develop appropriate applications to meet our needs,” Kanongovere said.
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  • Dave

    So $200 million of bond dollars, divided by a population of 13 million means that each person should hold onto $15.40 bonds. Say that, only 50% of the population are adults, this means each person should have $30.80! If this is the case, then all the banks and their branches will have nothing.
    In the meantime there is $7.6 billion worth of electronic transactions in the first half of the year which is up 36%. It is safe to assume that the 36% increase used to be cash transactions, therefore the cash portion would have been +/- $2.7 billion. But we only have +/-$180 million of bonds and +/-$800 million of USA dollars which gives a shortfall of +/-$1.72 billion worth of cash.
    Basically another $300 million of bond dollars will be like “spitting into the wind”.
    Makes you think!

    • Rob

      I agree with u Dave. But according to rbz, the bond are more of an incentive to production than an alleviation of cash shortages. We should never aim to get ourselves back into a situation where we utilise so much or rely so heavily on cash as a means of transaction. Let’s discuss this rationally and we can move fwd.

  • Tapiwa

    The them and us mentality fuels further our problems of depreciated confidence. To begin changing our fortunes we need to begin having a more unified and positive national position. Albeit I note, this is not easy to achieve as it is not easy to solve our problems. We are stuck!

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