Bond Notes : Are the fears genuine? - Part 1

By Lenin Tinashe Chisaira

Many voices and temperatures, have arisen over the proposed introduction of bond notes by the Reserve Bank of Zimbabwe (RBZ). In a statement issued on 4 May 2016, RBZ Governor, John P. Mangudya, announced the forthcoming issue of $2, $5, $10 and $20 bond note denominations. Bond currency is not a novel idea, considering that Zimbabwe has been using bond coins since 2014. However, the notes have become the most prominent of a raft of measures proposed to deal with cash shortages. These shortages had metastasised societal   inequality. Disproportionately, the burden of cash shortages almost always falls on ordinary people, vendors, workers, civil servants, soldiers, policemen, small scale farmers, small scale miners and pensioners. These people brave the winter in bank queues awaiting uncertain cash withdrawals.

A bank queue in Harare: A result of cash shortages

Yet it seems that the few corrupt, politically connected individuals and corporates who have contributed to this severe cash shortage through externalisation are being shielded from responsibility for this mess. They seem to be shielded behind monetary policies that are camouflaged to appear as if there are pro-poor. Focus seem to have been shifted from bringing culprits to book as part of immediate diagnostic measures. Without justice, a situation where the poor will continue to be discriminated against in terms of access to the dollar and will be left to largely transact in much maligned bond notes which are at risk of transactional loss of value against multi-currencies, seems imminent.

A matter of basic economics

It is Government credibility however, not economics, that is at stake. The fear and mistrust run deep.

When economic rationale is used, bond notes appear to be a sanitiser in the current Zimbabwean economic situation.

As a background, the current debate on bond notes sprang up after the country secured a US$200 million loan facility from a development bank known as the African Export-Import Bank (Afreximbank). The facility was meant to stabilise foreign currency exchange and to incentivise foreign exchange earnings. This money is not immune from externalisation.

Externalisation and a skewed balance of payments, or simply the unsustainable model of importing more that the country exports, are among the main reasons why Zimbabwe went into a punishing hard currency shortage. On imports, the country has already gone deep into the mode of importing basic goods that should ordinarily be produced locally such as maheu, bottled water, milk, potato crisps, cereals, fruit juice and even camphor creams and petroleum jellies.

It is interesting to note that resistance against the bond notes has been mainly instigated and initiated by elites in society, made up of supermarket owners, big business, professionals and churchmen people. These and other well-to-do sections of the society have hyped up the resistance against bond notes to an extent where the so-called ordinary person on the street has become bewildered, alarmed and more confused. This is despite the fact that the same ordinary person has been enduring winter nights in bank queues with fellow ordinary people.

 To the ordinary person in the bank queues, bond notes can be a life saver. On the other hand, to big business, professionals or rich clergyman intending to externalise hard currency, it is a raw deal.

Bond notes and resuscitating local industry

It is apparent to anyone with a knowledge of basic economics that as long as the country imports more than it exports, there is trade deficit. The country experiences a skewed balance of payments. In such a situation, there is great need to work towards the resuscitation of local industry rather than importing more. An exclusively Zimbabwean medium of exchange, is an incentive towards such resuscitation and uplifts the livelihoods of vendors and small scale producers in mining, farming and industry.

The bulk of our sources of hard currency (which I won’t refer to as liquidity) is derived from exports and for this to occur, we need to incentivise the main producing areas, and these are not banks or supermarkets or churches, but small scale farmers, tobacco farmers and small scale miners and their support service providers in the form of vendors and siyasos in addition to large scale miners of gold, diamond and ferrochrome. Therefore, the bond notes are going to be welcome development to vendors, tobacco farmers as well as small scale gold miners, who desire immediate cash after selling their product, which produce in the long run can enable Zimbabwe to get back into meeting its balance of payments.

Admittedly, to get hard currency we also need foreign direct investment just as we need money from our people in the diaspora as well as lines of credit. But these two areas contribute just a mere 20% to our sources of hard currency.

It is apparent that the economic case for bond notes should be balanced against the re-assurances of trust in the government. For the confidence to be achieved, the government must exit its willingness to sanction the externalisation of currency and to bar corruption. These ills have an adverse effect on the resuscitation of local production.

-To be continued

 [Lenin Tinashe Chisaira is a lawyer and former student leader at UZ. He is a student of Economic Regulation and writes here and at www.africafightnow.org  in his personal capacity. Twitter: @LeninChisaira]