MDC-T says US dollar will disappear once Zimbabwe introduces bond notes

MDC deputy secretary-general Tapiwa Mashakada

Bond notes, which Zimbabwe intends to introduce to address the current cash crisis in the country, will become the only currency in circulation as United States dollars and the South African rand will disappear into the black market, Movement for Democratic Change Shadow Minister for Finance Tapiwa Mashakada said today.

The bond note, therefore, is an indirect way of reintroducing the Zimbabwe dollar.

Zimbabwe has said the bond note will be an export incentive and the country is not reintroducing the Zimbabwe dollar anytime soon.

The country’s main opposition party, however, said the low confidence among the people will result in most externalizing the United States dollar or keeping it under their mattresses.

“The USD will migrate to the black market where it will be exchanged for bond notes at a very high exchange rate. So exporters and anybody needing forex will have to go to the black market or apply to the RBZ,” Mashakada said in a statement.

“The bond notes will by default become the only currency in circulation as the USD and Rand will only be found on the black market. This will confirm the view that the bond note is an indirect way of reintroducing the Zim dollar.”

Full statement

Wednesday, 02 November 2016

Bond Notes: The Implications

The Reserve Bank appears very innocent about the neutrality of bond notes. Their explanation is this: Bond Notes are only an export incentive available to exporters who have actually exported and earned forex for the country.

On production of export receipts, the RBZ will deposit 5% of the value of exports into the exporter’s bank account in the form of bond notes.

The logic behind the export incentive is to promote exports in order to cure the shortage of USD. The argument is that since we don’t print USD the only means available to increase the supply of the USD is via exports hence the incentivisation.

Other major sources of the USD are diaspora remittances, NGO funds, Foreign Direct Investment. We all know that Foreign Direct Investment has been slaughtered by the indigenization mantra.

Assumptions:

1. People will use plastic money and they will not need cash

2. Low denominations of 1, 2 and 5 will discourage burning

3. The circulation of bond notes will be limited to exporters only

4. Bond notes will be backed by a $200 million Afreximbank facility

5.  The 5% bond note incentive will create USD6 billion worth of exports

6. Prices will remain denominated in USD and the bond note will be at par with the USD  so that is the rationale behind bond notes.

Unintended Consequences

1. Low confidence will result in depositors withdrawing USD balances, externalising it or keeping it under mattresses. Lessons of hyperinflation still linger. Already banks have further reduced withdrawal limits because USD balances are dwindling.

2. The USD will migrate to the black market where it will be exchanged for bond notes at a very high exchange rate. So exporters and anybody needing forex will have to go to the black market or apply to the RBZ

3. The bond notes will by default become the only currency in circulation as the USD and Rand will only be found on the black market. This will confirm the view that the bond note is a indirect way of reintroducing the Zim dollar

4. Imports will be restricted due to the rationing of forex.

Conclusion:

WHAT WILL HAPPEN?  IT all depends on confidence. As things stands confidence is zero. Therefore the likelihood of unintended consequences are extremely  high.

Dr. Tapiwa Mashakada
Shadow Minister of Finance

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