“Bond notes” and the law: A response to Tawanda Nyambirai

Flag of Zimbabwe sticking in a variety of american banknotes.(series)

On the 8th of May 2016, Mr Tawanda Nyambirai, a respected banker and lawyer, proffered a view on the legality of the “bond notes” that the Governor of the Reserve Bank, Dr John Mangudya, has said (in a press statement) he intends to inject into the market in the near future. A copy of Mr Nyambirai’s opinion may be found here.

By Fadzayi Mahere


As a concerned citizen who stands to be affected by the recent announcements of the Governor, one is following the plans of the Reserve Bank closely. One would hate to be caught off-guard as most Zimbabweans were in 2008 when, among other Reserve Bank measures, foreign currency deposits held in commercial banks were unilaterally taken by the Reserve Bank on the back of a hazy and unlawful justification that was later to be impugned by the Supreme Court in the case of Standard Chartered Bank Zimbabwe Limited v China Shougang International. Exercising my mind without rest since the announcement was made is the question of whether Dr Mangudya’s plans are lawful. I have already, in a previous piece, opined broadly on this question. I am of the humble view that the proposed introduction of bond notes by the Governor breaches the provisions of section 68 of the Constitution which requires the Governor, as an administrative authority, inter alia to act lawfully, reasonably and in a fair manner.

In this piece, I seek to respectfully disagree with aspects of what I will term “the Nyambirai argument”.


My first point of departure with Mr Nyambirai’s argument is his contention that because the bond notes have note yet been issued, the question of the lawfulness of the Governor’s plans does not yet arise. The starting point here is section 85 of the Constitution which permits a litigant to approach a court alleging that a fundamental right or freedom is likely to be infringed. It is established even under the common law that a well-grounded threat of harm can constitute a basis upon which a court can prohibit an unlawful course of conduct, even before it has taken place (subject of course to all the requirements of an interdict being met). In short, a litigant does not need to wait until the horse has bolted in order to seek the interference of the court against an infringement of their right to administrative justice under the Constitution.

Additionally, it can be safely stated that the proposed issuance of bond notes is at an advanced stage. The Governor asserted at paragraph 13 of his Press Statement of the 4th of May 2016 that the Afreximbank facility which will “back” (whatever that means) the issue of the bond notes has already been established. The Governor has also set out in detail how the “bond notes” will operate. For instance, we know that the “bond notes” will be at par with the US dollar and will be in denominations of $2; $5; $10 and $20 and will. Crucially, according to the Governor, the bond notes “shall” (the wording here is peremptory) operate alongside the currencies within the multi-currency system. This means that there is a real risk and possibility that the use of the bond note will be foisted upon the transacting public and given to us in exchange for our hard currency, i.e. the United States dollar. Why should one take monopoly money (with respect) in exchange of real money? Why should one have to wait until the acquisition has taken place to approach the court?

The Governor is past the consultation and development stage – the introduction of “bond notes” can safely be described as a fait accompli in the mind of the Governor when one reads the press statement. In the circumstances, all the ingredients that would at law or in a court establish a well-grounded threat of harm and a likelihood that our rights to administrative justice under section 68 of the Constitutional exist – particularly the right to conduct by the Governor that is lawful, reasonable and both procedurally and substantively fair.

It bears mention that the strict legal argument aside, there can be no harm in the populace debating the legality of proposed administrative conduct. One does not have to wait until an illegality is in fact committed before asking questions as to the legal effect of a plan communicated by an administrative authority, in writing, is. Accountability and civic education in fact demand this.

Lawfulness – The applicability of the Public Finance Management Act [Cap 22:19]

In my earlier article, I took issue with the non-existence of a legal basis for the issuance of bonds notes by the Reserve Bank and/or the Governor. Section 68 of the Constitution requires that all administrative conduct be lawful. I remain of the respectful view that the Reserve Bank Act does not empower the Governor to issue “bond notes”. The measures that the Governor is empowered to take to address cash shortages are carefully delineated under section 42B of the Reserve Bank Act. These measures do not include a power to issue “bond notes.”

The question that then arises is: does another lawful basis exist? Mr Nyambirai suggests that a basis can be found under the Public Finance Management Act. I respectfully differ with Mr Nyambirai that the Public Finance Management Act has any application to the Governor’s plans to introduce “bond notes”. I am fortified in my view by the fact that the Governor has no powers whatsoever in terms of the Public Finance Management Act – to do anything. The administrative authority responsible for administering the Public Finance Management Act is the Minister of Finance. Accordingly, it follows that the Governor cannot purport to be doing or implementing anything under this Act. Nowhere in his press statement has he purported to speak on behalf of the Minister of Finance – he would have no authority to do so. The law does not authorise him to do so. To the extent that the Governor thus purports to exercise a function in terms of the Public Finance Management Act, he is in breach of his duty to act lawfully under section 68 of the Constitution. Any purported issuance of bond notes by the Governor in terms of the Public Finance Management Act would be, in my respectful view, invalid on this simple basis.

“Bond notes” are not “bonds” as envisaged by the Public Finance Management Act

Mr Nyambirai loosely contends that “a bond note falls squarely within the definition of a bond” under section 2 of the Public Finance Management Act. In so doing, he unduly (with respect) conflates the concept of a bond issued by the Minister of Finance in terms of section 54(3)(a) of the Public Finance Management Act and the “bond notes” which the Governor has in mind – the fictitious money we will have to use in daily transactions in place of real money.

I am of the respectful view that “bond notes” as envisaged by the Governor are not the same as “bonds” as defined under section 2 of the Public Finance Management Act. As stated above, the law in any event would not permit this: section 54(3)(a) of the Public Finance Management Act reserves the power to issue bonds for the Minister, not the Governor. The Public Finance Management Act does not define a “bond note”. Section 2 of the Public Finance Management Act only defines a “bond”. A bond is defined as “a document issued in pursuance of Part VI acknowledging a debt and binding the State to pay a specified sum at a stated time or on special conditions, and includes a debenture or other form of certificate of indebtedness.” The definition of one cannot extend to the other, in the same way that the definition of “ice” cannot be conflated with the definition of “ice cream”.

Section 54 of the Public Finance Management Act which is the section which Mr Nyambirai argues forms a legal basis for bond notes could not have been the section relied upon by the Governor because this section relates to the manner of raising State loans. The Governor has not purported in his press statement to be raising a state loan. His motives for issuing bank notes are part of a cocktail of measures meant to deal with cash shortages while, apparently, stabilising and stimulating the economy.

Particularly, section 54(3) of the Public Finance Management Act provides that the Minister may borrow by way of the issue of bonds. This means that the bond would be a form of debt security – hence why it is, according to the definition under section 2 of the Public Finance Management Act, “a document acknowledging a debt”, a government debt. It would, among other requirements, have to be time bound and binds the State to pay back a specified sum at a stated time.

Let us try to apply the definition of a “bond” under section 2 of the Public Finance Management Act to be applied to the “bond note” scenario proposed by the Governor. If we assume that the “bond note”, is (according to the Nyambirai argument) an acknowledgment of debt, does this mean that once in circulation it is proof that the Government owes the holder the sum written on the face of it? If we are to be true to the definition, what is the stated period after which we can get the value of the bond? Does it mean that the government owes us US dollars which we will eventually get back? If so, when? If the measure is thus time bound, does it mean we will all eventually get our money back? If so – how is the problem of capital flight related to as the key basis for the measure ultimately resolved? It clearly won’t be because, after the time is up, we should get our money back, leaving the economy at square one. If this is the basis relied upon by the Governor, (which I doubt for all the reasons I have stated, with respect) it does not pass the constitutional test of irrationality and would also be a breach of section 68 of the Constitution.

There is also the added problem that the President has not authorised the Minister to borrow from anyone – a peremptory requirement under section 52(1) of the Public Finance Management Act. It is no answer as opined by My Nyambirai that he is likely to do so – this is a peremptory procedure that should be followed. If not followed, it invalidates the entire scheme. It has to be borne in mind as well that in order to borrow from a person (in this case the public who hold the USD that would be acknowledged in the bonds), one requires their consent. A lender, even to the government, has to agree to lend the government money before the government can borrow the money from one and issue one with a bond to acknowledge and confirm its indebtedness. One has to know when one will get their (real) money back.

If the “borrowing” for the purposes of Part VI was a loan from Afreximbank – then Afreximbank and not the innocent public would receive the bonds. Yet this is not what is planned to happen. All the scenarios I paint here confirm that the application of the definition of “bond” under the Public Finance Management Act as a possible legal basis for the Governor’s plans is a huge stretch which is not borne out by the provisions of the Act and the conduct of the Governor.

My view is that a reading of the Governor’s press statement shows that the Governor does not intend to issue bonds in accordance with section 2 of the Public Finance Management Act (which he in any event does not have the power to do) but he intends to inject into the market a form of fictitious money which would operate as a currency (though not in fact currency). Support for this view is found in paragraph 13 of the press statement where the Governor states that the bond notes “shall continue to operate alongside other currencies within the multi-currency system and at par with the USD”. A real bond under section 2 of the Public Finance Management Act cannot be forced upon a service provider or used in a supermarket – because all it does is show that someone, the Government, owes you money. It cannot satisfactorily replace money as a means of value exchange.

The Governor’s clear message is – treat the bond notes as money, like you do other currencies in circulation. No time limit is set. We cannot assume one will be set. It is not an acknowledgment of state indebtedness to one – it is a money substitute with no basis at law. I therefore remain of the view that the proposed introduction of “bond notes” is unlawlful, unreasonable and both substantively and procedurally fair in breach of section 68 of the Constitution.

Do not be fooled: Bond notes are exactly like bond coins

Mr Nyambirai states that bond notes cannot be open-ended like bond coins are. His argument in this regard is possibly informed by the fact that there appears to be no legal basis upon which bond coins have been created by the Governor, never mind some of their suggested economic merits.

The Governor does not mince his words. At paragraph 13 of his press statement states in no uncertain terms that the bond notes are “an extension of the current family of bond coins.” It follows that the bond coins and the “bond notes” to come are part of the same unlawful construct, as a matter of law. The same illegalities that afflict the bond coins, in particular their open endedness, the fact that they cannot be redeemed for real money after a particular period for real money, the fact that they are not in any way an acknowledgment of government indebtedness – all in breach of Part VI of the Public Finance Management Act – afflict the bond notes. I say this without accepting that the Public Finance Management Act in any way enables any part of the Governor’s conduct in this regard. I do not see any law that does. By his own admission, the Governor is not creating anything new – it is not a new fancy bond. He is just extending the bond coin regime to paper money, which signifies as I have opined before, an incremental return to the Zimbabwe dollar, regrettably.

Is the Afreximbank “facility” lawful?

Mr Nyambirai, in seeking a legal basis for the Governor’s conduct, further places reliance on section 7(1)(n) of the Reserve Bank Act which empowers the Reserve Bank to borrow money from a financial institution – an important caveat is that such money must be borrowed on behalf of the State and not on the Reserve Bank’s own behalf. It would appear that the Afreximbank facility already falls foul of this requirement because according to paragraph 13 of the press statement, “the Reserve Bank (not the Reserve Bank acting on behalf of the State) has established a USD200 million foreign exchange and import incentive facility which is supported by the African Export-Import Bank”. There is nothing in this statement that even mildly suggests that the Bank entered into this agreement on behalf of the State and not on its own behalf. Mr Nyambirai makes an (with respect) unsubstantiated assertion that he “assumes” that the facility will be concluded on behalf of the State. He further makes it clear that he assumes that the Governor is not entering the territory of quasi-fiscal activity. The basis of his assumptions is unclear – there being no evidence that the facility is taken on behalf of the State and that the Governor is not purporting to exercise powers he does not have.

When an administrative authority has a constitutional obligation to act lawfully, as citizens we cannot assume that he or she has done so. The administrative authority, in this case the Governor, is obliged to show that he has acted lawfully. The public is entitled to be satisfied of the lawfulness of any proposed conduct.

More fundamentally, there is confusion as to whether this unspecified ‘facility’ constitutes a loan from Afreximbank or whether the Reserve Bank has deposited this amount with Afreximbank who have “backed” the issuance of $200 million against such a deposit. Or is it the case that the Reserve Bank has the money but is keeping it safely somewhere to avert capital flight? The terms of the Afreximbank facility have to be disclosed to the public in the interests of public accountability. Section 62 of the Constitution enshrines the public’s right to this information. Where constitutional rights and administrative justice are concerned, we cannot be content to operate on the basis of an assumption. What happens if we are wrong on this assumption? Why should the Reserve Bank hide the information if everything is above board? The question of the precise terms of the Afreximbank facility agreement is not a sterile debate about form – if the facility is not shown to be a ‘borrowing’, the facility does not comply with section 7(1)(n) of the Reserve Bank Act and would on that further basis be unlawful and thus unconstitutional.


There can be no doubt that the Governor intends to purport to issue the bond notes so that they operate as a medium of exchange, a unit of accounting, and a store of value – a form of money that we are all meant to agree to accept it in making all manner of transactions. This, in my respectful view, is not a government bond in the Public Finance Management Act sense. I am yet to find a law that would permit such a course. To the extent that none exists, the Governor’s conduct offends the public’s constitutional right to administrative conduct that is lawful, fair and reasonable.

(C) Fadzayi Mahere. Not to be reproduced without the author’s prior permission.

(I must thank Mr Nyambirai for giving me that nagging legal tickle – an interesting bit of law to think about.)

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1 Comment on “Bond notes” and the law: A response to Tawanda Nyambirai

  1. After reading Nyambirai and Mahere’s articles, my view is that they are both wrong. Nyambirai is wrong in so far as he believes that the bondnotes will be issued in terms of the Public Finance Management Act. One does not have to go at lengeth to demonstrate the wrongness of Nyambirai’s viewpoint but to look at the intention of the legislature when the provisions relied on were enacted. Those provisions deal with government borrowing and no more. The bondnotes are a legal tender, loosely called money.

    Mahere is wrong in arguing that there is no legal basis for issuing bondnotes. Once She admits that bondnotes are a currency as she did in her conclusion, then here whole argument about the legality of bondnotes falls apart. Section 40(1) of the Reverse Bank of Zimbabwe Act provides that “Subject to subsection (3), the Bank shall have the sole right to make or cause to be made and to issue banknotes in Zimbabwe”. The is no definition of “banknotes” in the Act, however the Merriam-Webster dictionaray defines “banknotes” as ‘promissory note issued by a bank payable to bearer on demand without interest and acceptable as money’. The question is thus whether bondnotes fit that definition and if so they are banknotes as envisaged by Section40(1) of the Reserve Bank of Zimbabwe Act.

    By her own contention bondnotes will possess the three properties of money when issued viz: medium of exchange, store of value, and unit of account. With these properties bondnotes are money and legal tender once issued, and thus fall within the provisions of Section40(1) of the Act. Their nomenclature is a none issue, and it would appear that in her argument Mahere appears to be more concerned about that. The notes could be called “Great Zimbabwe Notes”, “Bearer Notes”, etc, that does not matter the question remains do they meet the definition of “banknotes’? If so end of story.

    The fact that they will be backed by a facility from Afreximbank facility is more of an economics issue than a legal matter. We all know that money as it is generally known today world over is “fiat” and not backed by any other asset. Before the advent of fiat money there was gold backed money. Central banks would issue notes and coins with face values equivalent to some gold stored elsewhere. As financial systems became modern, it was realized that money could perform its functions perfectly without being backed by some gold reserve, hence the advent of fiat money. The bondnotes as proposed by the RBZ are some form of asset backed currency, where the Afreximbank facility act as the asset. As correctly pointed out by Nyambirai in his article, the role of the facility is to give would be users confidence that indeed bondnotes will maintain their value at par with the USD.

    The argument that the bondnotes will depreciate in value towards the USD does not find support in the proposals of the the RBZ. As long as the value of bondnotes in circulation does not exceed the value of the facility, they will remain at par with the USD. What is quite staggering is why the legality of using USD as legal tender in Zimbabwe has never been questioned by people who are now challenging the legality of issuing bondnotes.

    There have been arguments that bondnotes represent a well planned move to bring back the Zimbabwean dollar. The question is so what? The hyper inflation experienced between 2006 and 2008 was a function of excessive money supply not currency in use. It therefore means, the administrative action of concern is excessive money supply not introducing a particular currency as legal tender. If you do not trust the RBZ to follow economic principles in the implementation of monetary policies, then your solution lies in changing the government not raising some legal issues that do not exist. It is not the role of the courts to determine what administrative decisions and actions must be taken by public administrators but to ensure that in making such decisions administrative authorities act lawfully, reasonably, and failrly.

    It is questionable that the RBZ should consult all and sundry before introducing bondnotes when one reads Section 40(1) of the Reserve Bank of Zimbabwe Act. To force the RBZ to do so will make its functions virtually impossible. The argument that the introduction of bondnotes will threaten people’s right to property simply does not make sense. By keeping one’s wealth in a currency one runs the risk of losing that value due to inflation and depreciation of the currency. People that held Pounds Sterling had their wealth drastically reduced because of the Brexit. Such losses and gains will continue to be experienced as long as one decides to keep their wealth in a particular currency.

    I will touch a bit on Mahere’s argument concerning the Afreximbank facility. Her arguments were at best speculative because, they are based on presumptions. The RBZ is run by professionals and so is Afreximbank. Legality of any agreement they enter into will be an issue before signatures are appended to the documents. It is unrealistic to expect the Governor to state in the press statement that we entered into the facility for and behalf of government. The public is expected to assume that that was the case unless there is evidence to the contrary which she did not give. As to the RBZ making the information public, my view is that in the discharge of its mandate the RBZ enters into numerous such arrangements, and to expect it to make public the terms of such arrangements exerytime they are made will be to ask too much from the central bank. Any person interested in knowing details of the arrangement is empowered to request for such information under the law.

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