Saturday, 12 November 2016

MANGUDYA : BOND NOTES WILL SAVE DOLLARS

Zimbabwe is losing billions of US dollars through activities like externalisation, and introduction of bond notes will ensure the country has a medium of exchange that guards against practices that cause cash shortages. 

Reserve Bank of Zimbabwe Governor Dr John Mangudya told The Sunday Mail that bond notes would preserve the value of the US dollar as they were not prone to capital flight, hoarding and externalisation. The central bank has been importing US$15 million monthly to ease the cash crunch, but the money quickly finds its way out of the country.

Dr Mangudya said bond notes were “an anti-money laundering tool … useful in guarding against externalisation of US dollars.

“The legal tender will operate just like the currencies of the Common Monetary Area which include South Africa, Namibia, Swaziland and Lesotho whose currencies are pegged 1:1 with the rand, but are not legal tender outside their borders.

“The Zimbabwean economy has continued to suffer from foreign exchange malpractices since the adoption of the multi-currency system in 2009. The foreign exchange malpractices include externalisation, capital flight, the hoarding of the US dollar cash and the looting by unscrupulous businesses and individuals,” Dr Mangudya said.

Bond notes will operate concurrently at the same value as the US dollar, backed by the Afreximbank Nostro Stabilisation and Export Finance Facility. The RBZ said bond notes were specifically for exporters while the general public would come across them as change in the supermarkets, for instance.

Dr Mangudya explained: “The RBZ would like to reassure the public that bond notes, which will be introduced to support exporters, are a necessary export incentive scheme aimed at encouraging domestic production for export, especially given the external shocks of low international commodity prices and the strong US dollar.

“The economy has to generate liquidity in this uncompetitive environment while at the same time ensuring that the incentive is preserved from externalisation and unscrupulous business. The multi-currency system is here to stay and it needs to be supported by more goods and services.”

Bond notes will be redeemable for any currency in the multi-currency system. Economist and banker Mr Persistence Gwanyanya said there was need to ensure bond notes do not flood the market.

“One of the reasons why the bond coins have so far maintained the rate of 1:1 to US dollar is that they remained in short supply. Only an amount of US$15 million, out of the US$50 million facility, are currently circulating in the economy. Given a population of 13 million people in Zimbabwe, it means that the average exposure to the bond coin is less than US$3,85 per person, which is too insignificant to upset the exchange rate peg.

“By the end of the year, an estimated US$75 million in bond notes will be injected in the economy to take the total to US$125 million, which translates to an average exposure of US$9,62 per person, which is still very low.

“Even after the bond notes are fully injected, the average exposure will be US$19,23 per person, which is still too insignificant to cause parallel market activities and disturb the exchange rate. There are indications that some people are hoarding US$50 and US$100 notes, resulting in analysts calling on the RBZ to consider importing smaller denominations.
Zimbabwe National Chamber of Commerce president Mr Davison Norupiri said: 
“Commercial banks should import smaller denominations such as US$1, US$5 and US$10 notes instead US$100 dollar notes which can be easily siphoned out of the country.” Sunday mail

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