Roundup: Zimbabweans remain sceptical of proposed "bond notes" despite gov't publicity campaign

For many Zimbabweans, the memory of last decade's hyper-inflation remains fresh. The least they would like to see is the return of an ever-depreciating currency that might wipe out their savings and pensions.

Six years after the local currency was abandoned, they had good reasons to worry that it would start all again since the central bank announced earlier this month that it would introduce bond notes, backed by a 200 million U.S. dollar loan facility introduced by the Africa Export Import Bank, to ease the U.S. dollar shortage that the country was facing.

No definite date has been announced for the release of the notes, but it was widely estimated to materialize in July.

While some economists, banking institutions, retailers and industry have supported the initiative, ordinary people have remained sceptical and fear a return of the Zimbabwe dollar through the back door.

The Reserve Bank of Zimbabwe (RBZ), or the central bank, which went on a publicity campaign lately seeking to clarify the position, said that the bond notes would only mean to support an "export bonus scheme" under which it would pay 5 percent incentive or bonus to exporters of goods and services in bond notes and would not exceed the 200 million U.S. dollars in value.

RBZ also re-emphasized that the bond notes would circulate in the market alongside other currencies within the multi-currency system at par with the U.S. dollar.

The Zimbabwe dollar became moribund in February 2009 and made way to a multiple currency regime dominated by the U.S. dollar and, in the initial stages, the rand.

To give more confidence to the people, the central bank said the bond notes were redeemable for any currency within the multi-currency system - USD, South African rand, British pound, Euro, yen, Australian dollar, yuan, pula and rupee.

However, many people remain unconvinced.

Techzim, a news blog that focuses on covering information technology news, views and reviews about products and services in Zimbabwe and the surrounding region, last week carried a snap survey on its readers to find out how they felt about the new policy.

"Bond notes remain unpopular and controversial, and the central bank's fire-fighting is making little headway," it said.

One Whatsapp contributor had a cynical analysis of the situation, compared it to Zimbabwe's National Breweries introducing purified water packaged in beer bottles and trying to convince drunkards that it is backed by the same amount of beer stored in tanks at SABMiller in South Africa and that the water will help curb drunkards' quest for real beer.

Many people have also questioned why the RBZ did not simply inject the 200 million U.S. dollar directly into the economy, but the central bank said this would not be prudent.

The economy had suffered from foreign exchange malpractices since the adoption of the multi-currency system in 2009, the central bank argued.

"Bringing in bond notes would mitigate against such malpractices and other vices that have become entrenched in the economy," it said, adding that Zimbabwe's widening trade deficit of around 2.5 billion U.S. dollars required a substantial policy reset to promote exports in view of lack of competitiveness of Zimbabwean exports due to global shocks that included a strong U.S. dollar, sharp decline in commodity prices and tighter global financial conditions.

Apart from the proposed introduction of bond notes, other highlights of the new initiative are: the public will only be able to withdraw a maximum of 1,000 U.S. dollars, Euro 1,000 and 20,000 rand from their accounts daily.

Maximum cash that can be taken out of the country has also been reduced from 5,000 U.S. dollars to 1,000 U.S. dollars, 1,000 Euro and 20,000 rand.

Economist and chief executive officer of the Zimbabwe National Chamber of Commerce Christopher Mugaga said that the policy could be an indirect route to internal devaluation given that most products denominated in U.S. dollar were overpriced.

He was concerned, however, that capital remittances from cross border investments had been given the lowest priority.

"Foreign investors on our stock market are effectively trapped in the country, which also means new investors won't come in any time soon," he argued.

He also noted a potential dwindling of the assurance and investment products with people fearing the possible return of the Zimbabwe dollar.

"Remember we were assuring policyholders and investors that the Zimbabwe dollar would only return when the economy was kicking. Now, 12 months into that assurance, these stakeholders are staring at the prospect of the Zimbabwe dollar."

Another economist Clemence Machadu said the introduction of bond notes would perpetuate the same demerits of the U.S. dollar which had resulted in Zimbabwean exports being uncompetitive.

"As the U.S. dollar appreciates, as has been the trend, the bond notes will also appreciate automatically, and that won't be good for our export competitiveness either.

"But the positive side of it is that the move will curb rampant malpractices such as cash hoarding. The U.S. dollar is an international currency and is very vulnerable to hoarding in Zimbabwe, given that it is very overvalued in the country and the doing business and competitiveness environments are not up to scratch," he said.

Machadu said Zimbabwe was currently being used as a conduit for rounding up all the U.S. dollars which were then smuggled to other countries.

In the meantime, many Zimbabweans fear the unknown and would rather stick to the U.S. dollar for now, despite the fact that the RBZ and the government have said that the bond note will definitely be introduced. Endit