As the release of bond notes into the Zimbabwean economy grows ever closer, the questions surrounding this development are becoming louder. The lengthening bank queues have been taken by many as a sign of panic among the general populace. The Reserve Bank has embarked on a program to educate the masses on what exactly bond notes are and what they mean for the people.
What is a bond note?
Bond notes are a financial instrument with a value equal to the US dollar. The notes are meant alleviate the cash crisis that has hit Zimbabwe due to externalization of cash because of the country suffering a trade deficit. Externalization, coupled with a global shortage of the US dollar (according to the Daily Telegraph), has led to acute shortage of cash with some banks in Zimbabwe reducing their daily withdrawal limit to $50. The bond notes will then aim to keep ‘cash’ within the borders of Zimbabwe and hence alleviate the cash shortages. Bond notes also seek to incentivize
Will Hyperinflation Become A Thing Again?
With the memories of 2009 still fresh on the majority of Zimbabweans minds, there is growing fear of hyperinflation when bond notes are introduced. For many, bond notes are the reincarnation of the Zimbabwean dollar which fast turned into worthless paper leaving many without their businesses and savings. However, with the notes being backed by a $200 million bond from Afrexim bank, the notes should maintain their value equal to the US dollar. This then means that the notes are a representation of the US dollar which is the actual currency in use. The bond notes are not a currency, but are rather a representation of an actual currency (in this case the US dollar), and therefore cannot be affected by inflation themselves. Just as how bond coins have maintained their value, so should the notes.
How Will They Be Implemented?
It has been said that an initial $75 million will be introduced into circulation. Notes carrying the value of $2 and $5 will be first introduced and it is largely unclear whether notes carrying larger denominations will be introduced as well.
How Long Will They Stay For?
The above question has also not been clearly addressed and has further fueled the uncertainty over the introduction of the notes. The working theory is that the notes are designed to incentivize importers. Increased imports will then reduce the trade deficit and ease the cash crisis. Availability of cash and a normally functional banking system will then attract investors and subsequently revive industry and increase production in the economy. So essentially, the notes will be in circulation until the export incentive scheme is exhausted. Will it play out like that? Only time can tell.
Have a look at the Official Press Statement from the Minister of Finance and Economic Development Hon. P.A. Chinamasa here: