Bond notes launch stirs market apprehensions
A FALSE start in the introduction of bond notes and inconsistencies behind the message around the promissory currency were laid bare this week, dampening market confidence in the monetary instrument.
Zimbabwe is reeling from a severe cash crunch that has forced the government to introduce bond notes ostensibly as an incentive to exporters. But recent developments and conflicting accounts on the motive behind the bond notes has raised more questions than answers.
While banks in the public seem to support the measure, behind the scenes they are sceptical as they dread this might wreak havoc within the financial system and even worsen the crisis.
Reserve Bank of Zimbabwe governor John Mangudya brewed a shocker on Saturday by adding a $1 bond coin to the two denominations of bond notes while unveiling designs and security features of the new currency for the first time since May, dealing ahuge blow to public confidence in the new currency.
The central bank first announced plans to introduce bond notes, backed by a US$200 million African Export and Import Bank (Afreximbank) facility, in May but has been reluctant to share features of the surrogate currency or where they were being printed, citing security concerns.
After this announcement, Mangudya assured the market that an independent body would be set up to monitor bond notes in circulation. For many, this was the biggest assurance that the central bank would not run its printing machine unabated.
As many predicted, no committee has been set up and we are told that US$10 million worth of bond notes have been injected into the market, raising the level of mistrust between government and the public.
To add to the confusion, Mangudya first mooted the bond notes would be in denominations of $2, $5, $10 and $20 before backtracking in September that they would be in smaller denominations of $2 and $5, which are widely viewed as loose change, in order to mitigate the potential inflation risk.
Mangudya, who launched an awareness campaign for the bond notes beginning of November, for the first time unveiled $1 bond coins together with features of the new bond denominations, further dampening hopes the central bank chief was being sincere.
His decision to announce the introduction of bond notes on Saturday, which is not a normal working day, coupled with the short notice given to business and the general public to be familiar with the new currency unit has been seen asan ambush which also took a toll on confidence.
The hurried moves at the final and perhaps most crucial stages of the processs smacked of dishonesty and came after the market repeatedly raised fears Mangudya would print more than the US$200 million, given his predecessor Gideon Gono’s history of printing money without controls as well as the lack of watertight and credible monitoring mechanisms. During Gono’s tenure, bearer’s notes would sometimes find their way onto the streets before their official release date.
Despite Gono’s shortcomings, he always invested time and resources towards awareness campaigns that focused on the security features of new notes and coins as a means to fight counterfeiting.
The central bank used the weekend to unveil designs and security features of the new bond notes which were to be introduced to the market on Monday amid public resist- ance against the surrogate currency largely due to a lack of confidence in the ruling party Zanu PF.
Mangudya had arguably won some healthy levels of trust among members of the public with his bond coins, but he appears to have shot himself in the foot, losing the confidence battle by failing to have clear processes around the new currency.
Apart from the chaotic launch and surprise introduction of $1 bond coins, there was yet another source of embarrassment: banks were dispensing bond notes to anyone. This is contrary to Mangudya’s repeated statements and assurances the bond notes would be given to exporters as an incentive of up to 5% of the value of exports.
Depositors were surprised to get bond notes at banks and even forced to accept the new notes as a portion, of up to $50, of their total withdrawals.
A banker who spoke to the Zimbabwe Independent said the bond notes were part of the US$75 million worth of export incentives due to tobacco producers.
However, Tobacco Industry Marketing Board Chief Executive officer Andrew Matibiri said no tobacco farmer had been paid an export incentive as of Tuesday.
"As far as I am concerned farmers have not yet received any incentive. Maybe an announcement will be made by the RBZ in due course. The best person to talk to is the RBZ governor," Matibiri said.
Bindura Nickel Corporation managing director Batirai Manhando, whose company expects an export incentive of close to US$500 000, on Monday said no money had come through.
“Bond notes started circulating today. We have checked our account, it’s not reflecting yet. We expect that we should have the bond notes as an incentive because we have been exporting,” Manhando said.
Efforts to get clarification from Mangudya were fruitless at the time of going to print.
Large retailers took long to accept the bond notes due to communication challenges, according to information at hand.
“We only started accepting bond notes after 4:30 pm after getting an instruction from the head office,” said a till operator at a retail outlet in Eastlea on Monday.
Economist Kipson Gundani said if bond notes were not credited into exporters’ accounts it then means the apex bank was deceiving Zimbabweans.
“Normally the bond notes should have been credited into exporters’ bank accounts and stock of money could have been withdrawn by people. If exporters have not received their money then this kills confidence and it means we are doomed ,” he said.
“Another thing, there is a fixed exchange rate between bond note and US dollar but in reality we know these had different characteristics.The fixed exchange rate is not real. Bad money drives away good money. People will use bond notes and will keep USD in their pillows and this will create and fuel the parallel market.”
Another economist Tapiwa Mashakada said Zimbabwe needs to boost confidence to resolve its economic crisis, adding bond notes have the opposite effect.