Zimbabwe introduces bond notes to ease cash crisis

Zimbabwean President Robert Mugabe
Zimbabwean President Robert Mugabe

ZIMBABWE yesterday said it would soon introduce bond notes valued at $200 million among several other measures designed to ease an acute shortage of cash, amid fears the move was a subtle way of bringing back the long-discarded Zimbabwe dollar through the backdoor.

Announcing the new policy measures, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya said the new Zimbabwe bond notes would be in denominations of $2, $5, $10 and $20 and would be introduced in two months’ time.

“The Zimbabwe Bond Notes of denominations of $2, $5, $10 and $20 shall, therefore, be introduced in future, as extension of the current family of bond coins for ease portability in view of size of the USD200 million backed facility,” Mangudya said.

“The facility shall also be used to discount trade-related paper in order to provide liquidity for business trading operations.”

He said retailers and wholesalers would be compelled to have multi-currency pricing of goods and point-of-sale machines to increase the use of plastic money and also spur the usage of other currencies in the multi-currency basket.

Mangudya also introduced a tight cap on daily cash withdrawals with the public now only able to withdraw a maximum of $1 000, €1 000 and R20 000 from their accounts.

“There is no harm in bringing (back) your currency provided the fundamentals are right,” Mangudya said, adding currently, the fundamentals were wrong.

Local authorities, government departments and utilities will be compelled to use point-of-sale machines to reduce demand for cash as the RBZ has also introduced import priority measures to boost local production and stem imports.

Mangudya said with effect from today, 40% of all new United States dollar foreign exchange receipts from exports of goods and services, including tobacco and gold sales, would be converted by RBZ at the official exchange rate to the rand and 10% to the euro.

“The policy measure is designed to ensure that we spread the demand for cash among a wide range of currencies in order to mitigate against concentration risk,” he said.

He said RBZ has established a $200 million Stabilisation and Incentive Support Facility to cushion against high demand for foreign exchange and provide an incentive facility of 5% on all foreign exchange receipts, including tobacco and gold proceeds. The facility is supported by the African Export-Import Bank.

“In order to mitigate against possible abuse of this facility through capital flight, the facility shall be granted to qualifying foreign exchange earners in bond coins and notes which shall continue to operate alongside other currencies and at par to the dollar,” Mangudya said.

He said priority would be given to the importation of raw materials or machinery, strategic goods such as basic foodstuffs, agrochemicals and payment of services not available locally.

Asked what action would be taken against non-compliant retailers and wholesalers, Mangudya said the RBZ would use the Anti-Money Laundering Act to enforce the new regulations.

“We are working with banks and retailers. We want to ensure that we use the stick as a last resort. Right now, we want to use the carrot,” he said.

Mangudya said the balance of payments position had been deteriorating from 2011 averaging a negative of $2,5 billion per year. In the period 2004-2006, the negative balance of payments was $400 million per year.

The balance of payments is the difference in the total value between payments into and out of the country over a period.

Mangudya added that the new measures would go a long way in easing the liquidity crisis while curtailing import dependence and restoring confidence in the multi-currency system and banking sector.
The RBZ introduced bond coins in December 2014 provide loose change to Zimbabweans who were rounding off prices to the next dollar.
The bond coins already in circulation are in denominations of 1 cent, 5c, 10c, 25c and 50c.
Locals are still sceptical of their government and have often resisted attempts to reintroduce the Zimbabwe dollar which they blame for the loss of their savings during the hyper inflationary period before the switch over to the multi-currency system in 2009.
Zimbabwe has been going through a biting cash crisis since the beginning of the year as banks fail to meet the demand for cash. This has seen banks in the interim putting a cap on withdrawals.
Statistics from RBZ show the currency utilisation levels of the US$ have risen to the current 95% from 49% in 2009. This has increased the demand for the US$ as other currencies in the basket were elbowed out.
So severe is the cash crisis that a survey by NewsDay yesterday showed that a number of parents were struggling to pay school fees and forcing families to reduce on groceries and borrow more money, leading into more debt.
“There are workmates of mine using some banks which are limiting withdrawals to $200 a day. The result is that
they have failed to pay school fees for their children, cover up some credit and
settle debts. Some of them ask for cash advances for bus fare from our bosses who deduct the amounts from their salaries at the end of the month,” said a man who preferred to be called Joshua, a security guard in Harare.