Bond notes and ‘power of demonstration’

By Joram Nyathi

ZIMBABWEAN President Robert Mugabe on Monday this week signed Statutory Instrument 133 of 2016. It amends the Reserve Bank of Zimbabwe Act to make the soon-to-be-launched bond notes legal tender.

The same day, the central bank launched a nationwide campaign to explain the new fiat money, which it says will have the same value as the United States dollar.

The two processes, while they will not immediately end people’s fears of the bond notes, at least they will end six months of uncertainty about which direction the government was going. Those six months since the central bank governor John Mangudya announced plans to introduce a surrogate currency called bond notes have been filled with intense speculation about their implications for the Zimbabwean economy. There have been court challenges and demonstrations too against the introduction of the bond notes.

Since the beginning of the year, Zimbabwe has faced a debilitating cash crisis, mainly of the anchor United States dollars. The Reserve Bank attributes this in part to lack of proper planning when the country dollarised in 2009. Mangudya and Finance Minister Patrick Chinamasa argue that it was a mistake to use a strong currency such as the US dollar as a trading currency. This has rendered the country’s exports less competitive and made it a net importer, creating a huge trade deficit in the economy.

Traders and vendors of all description now come to Zimbabwe to sell their trinkets just to harvest American dollars on the streets of Harare. As Chinamasa once put it, Zimbabwe has become a regional fishing pond for American dollars.

Mangudya also argues that there has been massive externalisation of foreign currency over the past few years. This is not matched by exports or increased inward investment in the economy. The bond notes are being introduced as fiat money for daily transactions in Zimbabwe while the United States dollar assumes its proper place as a reserve currency used only to meet critical imports such as medicines, procurement of capital equipment and raw materials, food and fuel imports.

This way the Reserve Bank hopes to limit the externalisation of foreign currency and cut down on non-essential imports. It has solid reasons for the idea in the absence of viable or credible alternatives to a local currency.

But the central bank mishandled the introduction of the bond notes. It has not fully explained the inordinate time lag between the announcement in May and the uncertainty about the launch date up to now. Yet Mangudya himself showed irritation when asked about the launch date. He did not understand why people insist on knowing the date, telling the media: “It’s terrible in this economy. You give them information in good faith and they use it as ammunition. You need to have equilibrium of the information you give and what you will not give.”

That may well be true but it has left a large information gap, which has been occupied mainly by those with fertile imaginations for speculation. They have used the dead weight of distorted historicism to decampaign the bond notes, arguing Mangudya wants to reintroduce the Zimbabwe dollar through the back door. This is immediately linked to the hyperinflation experience of 2007/8 to try and persuade Zimbabweans against any talk of a local currency.

Lack of trust and confidence in the Reserve Bank are shorthand metaphors for this negative campaign. Which means the Reserve Bank will have a lot of catching up to do before it can undo the damage inflicted on its noble project to inject liquidity into the parched economy.

Success or failure will depend on how the central bank applies the carrot and stick to learn new experiences and outlive the embedded bitter memories of 2008. It needs to demonstrate that it is not printing bond notes beyond the US$200 million limit guaranteed by Afreximbank. (Although in these days of irresponsible use of social media it is not inconceivable for a malicious rumour monger to quote “sources” claiming US$6 trillion worth of bond notes have been printed!)

The proposed independent board to exercise oversight over the printed notes must be seen to be independent. Not that there will be no critics, but that it can report impartially and where an explanation is required, give one.

Producers, who need to import essential inputs, must be able to access foreign currency without undue delays. This is not anything unique to Zimbabwe. It is the procedure everywhere that people apply for foreign currency when going out of their country because most regional currencies are not readily convertible. We lost it in 2009 when we dollarised and allowed American dollars to be used to buy tomatoes and tissue paper on the streets. We must unlearn those bad habits.

Linked to the above is the stick. The country must fight the scourge of corruption. Those who genuinely want to import must not be subjected to bribes and onerous taxes. That means commercial banks, the Reserve Bank and the Zimbabwe Revenue Authority (Zimra) officials must be exemplary in their behaviour by facilitating business rather demanding personal gain.

It is not enough for Zimra officers at points of entry to merely demand duty for trade goods being brought into the country. There must be a paper trail of how much money was withdrawn from a bank against the value of the goods. We are a nation now used to a casino and kiya-kiya economy and people always try to break the rules. We have to unlearn those habits if we are to grow this economy.

While this might not be easy in practice, it is worth trying. People must convert to the practice of using plastic money or electronic transfers. The primitive pride in carrying foreign currency in a wallet or boot of a vehicle should be frowned upon. It is one habit unique to Zimbabwe.

If the Reserve Bank were to act with resolute decisiveness and integrity, and win the full support of commercial banks, traders, Zimra officials and law enforcement agencies, the resistance against bond notes should be easy to break. A majority of ordinary citizens have no access to foreign currency. They are ready to try anything to lead normal lives, including expecting miracle money from Pentecostal pastors. Let them have access to a currency they do not have to bury in the pillowcase or mattress.

A rare positive comment on the prospects of bond notes came from a local economist, Kipson Gundani, who told a weekly newspaper that resistance was mainly reflexive and emotional. He pointed out that once the bond notes were “accepted by major companies, especially public utilities and retailers, and the central bank sticks to its promises, confidence will return due to the power of demonstration”.

He continued: “It is important to note that bond notes make a lot of economic sense and what we are seeing are emotional responses from the people. Emotions are emotions. They will heal with time.”

That is possible, he pointed out, provided the authorities adhere to “policies that enhance incremental income to people, and avoid previous blunders that killed value”.

Mangudya, the ball is in your bank.

November 2016
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