Thursday, 15 September 2016


The Reserve Bank of Zimbabwe says at least $75 million worth of bond notes will be in circulation by December, but will only be issued in smaller denominations of $2 and $5 to allay public scepticism. 

The notes will be released into the economy at the end of October in support of an export incentive scheme which the central bank announced in May.The bond notes are backed by a $200 million African Import and Export Bank facility.
In May, the RBZ introduced the performance-related export bonus scheme of up to 5 percent to enhance productivity and promote exports with the overall aim of lubricating the economy.

The funding mechanism of the export incentive scheme will be through bond notes to preserve the offshore $200 million facility that backs the bonus scheme. The bond notes also become an anti-money laundering tool.

However, there have been concerns this initiative is a reintroduction of the Zimbabwe dollar through the back door.

“The bank has heard and taken note of the public’s concerns, fear, anxiety and scepticism of bond notes which all boils down to the general lack of trust and confidence within the economy,” said Dr Mangudya during presentation of his Mid-Term Monetary Policy Statement.

“The bank is addressing the concerns by planning to introduce smaller denominations of bond notes of $2 and $5.

“The bond notes will be gradually released into the economy in sympathy with export receipts through normal banking channels until the $200 million facility is exhausted with the country hitting $6 billion in exports.

“The issuance of bond notes has a self-control mechanism in that when there are no exports, there will be no bond notes,” Dr Mangudya said

“Therefore, at the rate which the country is exporting and based on statistics, we anticipate that bond notes equivalent to around $75 million will be in the market by end of December 2016,” he said.

“It is critical to note the introduction of bond notes does not mark the return of the Zimbabwe dollar through the back door. It is also important to note that bond notes will not be forced on people who do not like them” said Dr Mangudya.

The bond notes, which will only be usable in Zimbabwe, will complement the basket of foreign currencies that the country is using which include the United States dollar, the South African Rand, Botswana Pula, Indian Rupee and Japanese Yen.

But RBZ governor, Dr John Mangudya said the misgivings of a few groups would not dissuade the authorities from introducing a policy that was beneficial to the economy.
Dr Mangudya said the notes, whose value would be at par with the US dollar, would initially be introduced in small denominations of $2 and $5 to address fears by some members of the public.

Acknowledging that not every Zimbabwean was in agreement with the planned introduction of bond notes, Dr Mangudya said everyone was, however, in agreement that exporters should be incentivised to produce more and sustain the economy.

Tobacco farmers and gold producers were the top two exporters, Dr Mangudya said.
“They are the goose that lays the golden egg,” he said, adding foreign currency earned from the exports was sustaining the country’s multi-currency environment which was dominated by use of the US dollar.

An independent board made up of different stakeholders would be set up to monitor issuance of the bond notes and ensure not more than $200 million worth of the notes were allowed into circulation, he said, reiterating again that the economy was far from ready for reintroduction of a local currency, which was abandoned in early 2009.

“Introduction of the bond notes does not mark the return of the Zimbabwe dollar through the back door,” he said.

“The macro-economic fundamentals for the return of the local currency are not yet right to do so.”

Among the conditions are a minimum foreign exchange reserve equivalent to one year of import cover, a balanced and sustainable government budget, high consumer and business confidence, sustainable interest rates and levels of inflation.

Dr Mangudya said while smuggling of foreign currency out of the country was one of the major reasons for current cash shortages, it was impossible for the central bank to know how much had been taken out in hard cash.

The RBZ could only make estimates of monies channelled out through wire transfers, he said, a practice that the central bank had since put a stop to.
Introduction of bond notes is also seen as a solution to currency smuggling since they cannot be used outside Zimbabwe.

Meanwhile, the RBZ introduced eight new measures as part of means to boost production and enhance confidence in the market.

The measures include giving permission to private sector and government enterprises to apply for loans of above $20 million, up from $10 million, without RBZ approval and an incentive of between 2.5 percent and 5 percent bonus to be earned by Diasporans for remitting money to the country through official banking channels.

The central bank also slashed the interest rates charged on micro-finance institutions from 20 percent per month to 10 percent per month, introduced a $20 million and $10 million facilities to support small scale gold producers and horticulture/floriculture respectively.


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