(The Source) – Zimbabwe introduced its new currency on Monday to mixed market reaction — broad acceptance by major retailers, informal traders and public transport operators — but without the crucial buy-in of fuel retailers.
The country dumped its inflation-ravaged currency — the Zimbabwe dollar — in 2009 after printing a $100 trillion note that could not buy a loaf of bread and adopted the use of multiple currencies, chiefly the US dollar and major trading partner South Africa’s rand.
President Robert Mugabe’s government says the new currency, which he has described as a surrogate of the US dollar, is designed to curb the smuggling of physical greenback from the informally dollarised economy and boost flagging exports — both major factors cited for a biting shortage of US dollar bills that has seen long lines at the banks since the turn of the year.
The surrogate currency, dubbed ‘bond notes’ as they are backed by a $200 million Afreximbank bond facility, has been pegged at par with the greenback and will circulate alongside the US dollar, rand and other currencies in Zimbabwe’s official multi-currency basket.
The introduction of the bond notes has stoked fears of a return of hyperinflation, which peaked at 500 billion percent in December 2008 according to the IMF, as well as pervasive shortages of basic goods and foodstuffs.
On Monday, months after announcing it would introduce a local currency, Zimbabwe’s central bank finally injected $12 million worth of bond notes — in $2 and $5 bills — into the economy, in a bid to end the debilitating bank note shortage.
A $1 bond coin was also introduced, to join coins valued from 1 cent to 50 cents introduced in December 2014 to resolve the problem of small change under a different $50 million Afreximbank facility.
Banks started issuing the notes to depositors early on Monday, with many offering a combination of both US dollar bills and bond notes, a mix which typically sardonic Zimbabweans branded ‘bollars’ in messages shared on various social media platforms.
Despite fears that the currency would be rejected by the transacting public, major retail outlets and informal traders who dominate Zimbabwe’s economy, were seen accepting the bond notes.
The currency did have a less than assured start on Monday, with some retail outlets claiming they could not accept it as they did not know the new notes’ security features.
Zimbabwe’s burgeoning informal sector, which some analysts believe to be bigger than the formal economy, is likely to have the final say on the government’s currency gamble.
By mid-afternoon, airtime vendors and informal traders– selling products ranging from fruit to umbrellas in wet Harare and Mutare — were accepting the new notes, as were public transport operators.
“We accept bond notes, that is the money we have now so we have no choice but to accept it. Otherwise we will lose customers,” said an airtime vendor on Harare’s First Street.
Amid the din at the teeming Fourth Street bus terminus, vendors could be heard battling to outshout each other: “We take even bond notes!”
A similar scene was observed at Mutare’s Sakubva market.
“We have no choice, money is money,” says a man who only identifies himself as ‘fireman’ — the name given to scores of young men who shout themselves hoarse in a bid to draw the attention of potential buyers.
In Victoria Falls, our correspondent reported that some customers were refusing change in bond notes.
Indeed, one of the fears among the transacting public is that the bond note may not hold its peg for long, with an increasingly rare US dollar once again opening up thriving black market trade for the scarce greenbacks.
Our Bulawayo correspondent reports that the city’s infamous ‘World Bank’ was already discounting the bond note by as much as 20 percent.
“Ospatheleni (money changers) are offering 80 US cents to one bond note, while fuel retailers also have different prices for the bond notes and US dollars,” the Source witness said.
However, in Harare, several street currency traders interviewed by The Source did not report any trade yet.
“We have no (exchange) rate, but I’m sure it cannot be 1:1,” one trader, who operates from the Eastgate mall in downtown Harare, said.
Analysts and critics of the bond notes believe the currency could buckle under pressure from demand for increasingly short US dollars in Zimbabwe’s import-dominated economy. As such, how the central bank manages its US dollar priority allocation mechanism for vital, import-dependent industries such as the fuel sector, is going to be key in determining whether the bond note holds its value.
Even before the introduction of bond notes, there were rumblings within the fuel retail industry over delays in processing payments for petroleum imports due to the central bank’s restrictions, resulting in frequent stock-outs.
Although the government has moved to allay fears of extended shortages, several fuel retailers in the capital ran out of supplies over the weekend, a situation which spilled over into the new week.
On Monday, fuel retailers surveyed in Harare were holding off accepting bond notes, with many of them citing lack of familiarity with the new currency’s features.
The Source’s Victoria Falls correspondent reports that banks received the new currency late in the day on Monday, with major retail chains accepting the bond notes after initial resistance. However, some shoppers were witnessed rejecting the new notes as change.
Zimbabwe’s vibrant social media platforms, which provide a channel of dissent in what remains a restricted traditional media space, and are dominated by anti-bond note sentiment, panned the introduction of the new currency.