Zim citizens fear bond notes will reignite galloping inflation
ZIMBABWE’S tentative return to its own currency is getting a hostile reception from citizens, who fear a recurrence of the 500billionpercent inflation that plagued the nation before it abandoned its dollar.
The country would soon introduce so-called bond notes, pegged to parity with the US dollar and beginning with denominations worth from $2 (R28) to $5, central bank Governor John Mangudya said recently. It is an attempt to complement the range of foreign currencies used in the economy since 2009, which have been in short supply following a collapse in exports.
James Sakupwanya, who sells items such as maize meal, tinned food and blankets from his shop in Mutare, southeast of Harare, is not buying it. Sakupwanya and Zimbabweans like him saw the notes as a step back to the hated Zimbabwean dollar, which by the time of its demise was valued at 150 trillion to the greenback, according to the central bank.
“We will reject it,” he said. “They can legislate as much as they want, but it is their currency which they want to impose on us to manage the crisis they created.”
An earlier announcement of plans to introduce the currency sparked riots even after the government said the notes, which would be legal tender only in Zimbabwe, would be backed by a $200million loan from a multilateral lender.
Banks have limited cash withdrawals to prevent hoarding of dollars, used in 95percent of all transactions.
Zimbabwe has been gripped by a liquidity crisis that forced the government to pay its workers late in recent months. Finance Minister Patrick Chinamasa said on September 9 that the state might cut 25 000 civil service jobs as it struggled to meet pay obligations.
Payment
Zimbabwe owed lenders including the International Monetary Fund, World Bank and African Development Bank about $9bn, according to the finance ministry, and missed a $1.8bn payment in June.
“If people don’t want bond notes, they don’t have to accept them,” Mangudya told business leaders, while Bonyongwe said in the expected arrival of bond notes had caused “uncertainty in the economy”.
The bond notes would not address structural challenges facing the economy, said Naome Chakanya, an economist with the Labour and Economic Research Institute.
About 3 million of Zimbabwe’s 13million people still lived abroad after fleeing the economic crisis, said the UN.
“Some are going to accept it, some are going to reject it, others will be frog-marched to accept,” Chakanya said. “There is a high probability of emergence of a black market for US dollars.
Adding to the suspicion is uncertainty about who exactly will lend Zimbabwe the money to back the bond notes. Gift Simwaka, the African Export-Import Bank’s regional manager for southern Africa, declined to confirm whether the notes would be underwritten by the multi-lateral lender.
Without a hard-cash foundation, the notes will be no different to so-called bearer checks, a temporary currency with denominations of as much as 100 trillion Zimbabwean dollars, Sakupwanya said.
“They are forgetting that in 2008 we rejected their bearer checks, so what stops us from rejecting their bond notes,” he said. – Bloomberg