Bond notes in sharp value fall

By | March 5, 2017

Source: Bond notes in sharp value fall – DailyNews Live

Gift Phiri      5 March 2017

HARARE – There is renewed fear among both businesspeople and ordinary
Zimbabweans that the country’s economy may soon hit the disastrous lows of
2008 – as bond notes continue to lose their value against the United
States dollar, with the coveted greenback now almost completely
unavailable on the open market.

This comes as economists have also warned of a fresh round of sharp rises
in the prices of basic goods, including foodstuffs – as the US dollar
continues to vanish from the market, leading political analysts to
forecast renewed civil unrest.

However, Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya
(pictured), is adamant that the value of bond notes is not tumbling –
asserting to the Daily News on Sunday yesterday that the surrogate
currency was still trading at par with the dollar.

He also dismissed strongly recent State media reports that the
under-pressure central bank would soon introduce $10 and $20 bond notes to
ease the country’s severe cash shortages – claims which fuelled suspicion
that Mangudya was about to flood the market with the surrogate currency.

But long-suffering Zimbabweans who spoke to the Daily News on Sunday said
bond notes were “definitely devaluing”, adding that many shops around the
country were also beginning to reject them.

It was also established yesterday that some garages were giving preference
to motorists buying their fuel  in hard cash – particularly those paying
in US dollars.

An informal foreign currency dealer who plies his trade around Africa
Unity Square also said he was selling one American dollar in hard cash to
the equivalent of $1,30 in bond notes, meaning that the surrogate currency
had lost value to the tune of 30 percent.

Economic expert Prosper Chitambara said bond notes were losing their value
while US dollars were disappearing from the market because importers
needed greenbacks to replenish their stock – and given the scarcity of the
dollar and the demand for it, a premium was now placed on the American
currency, with an inevitable parallel market emerging.

“What is causing all this is that the bond note is not internationally
tradeable. If you are a business that relies on imports, you can’t use
bond notes to import, which has affected their value.

“Value in this case is determined by market forces of supply and demand,”
Chitambara told the Daily News on Sunday.

Another economist, Witness Chinyama, said the economy was now dominated by
bond notes, which the market perceived as “bad money”.

“The good money (dollars) has been driven out of circulation by the bad
money, as bond notes can’t be used to import goods.

“While at official level the currencies are still at 1 to 1, for the
importer, the bond note is weaker. The dollar is now the reserve
currency,” Chinyama said.

But Mangudya vehemently denied that the value of bond notes had tumbled.

“Have you seen twin-pricing in OK (supermarket) or other major outlets? We
can’t talk of backdoor shops … Go to the formal market, there is no
weakening of value there … we can’t talk of out-layers,” he said.

Asked about some supermarkets which are charging three to five percent
more for goods bought using debit cards, Mangudya said: “Thank you for the
information. We will use it to assist the market. It’s important what you
are telling me. It’s good information”.

Former Finance minister, Tendai Biti, was among those who also said
multiple exchange rates were now in existence in the market, adding that
the government was effectively running “a Ponzi scheme” – a form of fraud.

“You have four sources of the Ponzi scheme. First is dollar bank balances
sitting in the bank, with depositors unable to get their money. Depositors
have been transacting through RTGS (real-time gross settlement) and debit
cards.

“Wherever you use debit cards, it’s just transactional. We are circulating
hot money, and it’s huge. We need an audit of how much money has been
created through the circulation of hot money,” Biti told the Daily News On
Sunday.

“The second challenge is money being deposited into exporters’ accounts.
The RBZ is crediting accounts with RTGS balances. The real money is not
coming out. That money is being recycled and rechannelled.

“Government has been borrowing, issuing treasury bills and using them as a
source of currency. Take the RBZ debt of $1,5bn – all of it was paid by
treasury bills.

“We now have billions worth of treasury bills, some of which will be
redeemed as late as 2028.  Meanwhile, importers have queues ranging
between one month and six months. And applications for import permits are
not being processed.

“We need a change in government to restore trust. We need to start
producing … factories, mines have to start working. We need a whole raft
of reforms which Zanu PF is not capable of,” Biti added.

Many economists and businesses have been pushing for the adoption of the
South African rand to avoid the country plunging into an economic crisis.

President Robert Mugabe also backed Zimbabwe’s greater use of the South
African when he spoke in an interview with the ZBC to mark his 93rd
birthday a fortnight ago.

The nonagenarian has also since said that bonds notes are a temporary
measure to mitigate cash shortages in the country.

“Bond notes are just a temporary thing. We want you to bear with us. We
want you to bear with us. We wanted to adopt them for a short period,” he
said.

Meanwhile, opposition leader Morgan Tsvangirai’s MDC says bond notes were
“always going to be a disaster”.

“Bond notes were always bound to flop. It’s just a matter of time before
the bond notes experiment blow up in our faces. We don’t see these bond
notes holding sway until July this year,” MDC spokesman Obert Gutu said.

“The economy is in free-fall and our export earnings continue to decline
at an alarming rate. Essentially, bond notes are nothing more than useless
pieces of very cheap paper,” he added.

Cape Town-based think tank, NKC, has also said that the shortage of US
dollars on the market were fuelling price spikes.

“Upward price pressures could potentially be driven by the rise in the
cost of goods and services (mainly bread, cereal, seafood and oils) as a
result of US dollar shortages,” it said.

7 thoughts on “Bond notes in sharp value fall

  1. Joe Cool

    Can any financial wizard explain to me – in very basic and simple language, and without resorting to magic – how changing from US dollars to Rands would alter the situation?

    Reply
    1. Colbert

      The Rand is used in standard transactions in South Africa and elsewhere, South Africa is Zimbabwes largest trading partner. The incentive to hoard Rand would be nonexistent since its wide,y used right across the border. Also being on the Rand would remove a major factor In the countries uncompetitiveness due to the Dollar being far stronger than the Rand.

      Reply
      1. Chatham House

        Currency value is about confidence. The rand is a major player in Africa and Zimbabwe could come under that umbrella because Zanu molested Zimbabwe’s own umbrella as it molested the Matabele. It is not really ideal to have a 93 year old fart without a clue – to be directing the country’s affairs. When interviewed recently he told the reporter that the problem with the US dollar was that the RBZ could not print them! So, at the slightest oppurtunity to molest the umbrella of the people all over again – Zanu has. It created a Bond Note. The molestation is far reaching. Zanu molests the people who have been sent remittances from the diaspora and in the process attempts to molest the diaspora itself – who have left the country to get away from Zanu molestation. The incentive for Zanu to molest is huge. Every time they molest – they get the US dollars from the people in exchange for Bearer Cheque Toilet Paper, one hundred trillion dollar toilet paper or now Bond Toilet Paper. The molestation is pretty simple – make it law that Zanu may molest by taking real money from the people in exchange for Monopoly Toilet paper. Avoiding the molestation is then against the Law! “You must bank your US Dollars” Mugabe says!

        Reply
      2. Joe Cool

        Thanks, but your answer doesn’t hepl meThere was no incentive to hoard US dollars until the government created it, which would apply equally to rands. Uncompetitiveness is easily solved by reducing prices, not by changing currencies.

        Reply
    2. Tsotsi

      Exactly. It won’t change anything, but it distracts and obfuscates.
      The real problem is that Zimbabwe is massively bankrupt and ironically cannot do what so many other bankrupt nations can: either devalue the national currency or borrow on the international market by issuing the equivalent of an IOU. The other option of reducing expenditure by firing half the civil service, police, military is unthinkable.
      The rubber hits the road in the supermarkets. Prices will rise. ZANU PF will do what similar corrupt governments have always done: try to control prices. Food disappears. Riots, then violent overthrow of government. The crocodile wins. Martial law. The IMF comes back and forces many unpleasantries in exchange for access to the international bond market. The crocodile rules – autocratically – but policy is set by expat advisors. The crocodile is pragmatic. He agrees to hand the stolen farms back to commercial farmers. Potentially a boom time in Zim……

      Reply
  2. Homo Erectus

    South Africa does not have enough Rand Notes to go around if Zimbabwe is to officially use the Rand. South Africa would have to print more notes – and we all know what happens then. Because Zimbabwe is so full of thieves and crooks, ANY foreign or fully tradable currency introduced will be flighted out of the country within a week. A 100 or 200 Rand note wouldn’t even spend less than a week in Zimbabwe – it would be shipped out immeadiatly, either back to SA or Dubai. You have to get rid of the hyenas of Zimbabwe for not only the US$ to work here, but for the country to work. Maybe that old geriatric fart will go on one-too-many flights. He is the chief hyena, but with him out of the way, the rest of the pack will die.

    Reply
  3. Ian Smith

    There is only one solution elect a white citizen to fix the damage.
    Or borrow a retired President i.e. Obama to coach a white citizen with a brain.
    Money is the white man’s system it is not for black Africans it is very complicated especially so in today’s financial world.
    Good luck

    Reply

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