Let market forces determine bond notes value

Source: Let market forces determine bond notes value – DailyNews Live

28 March 2017

HARARE – The Reserve Bank of Zimbabwe Amendment Bill or Bond Notes Bill
has now been passed and gazetted as an Act of 2017.

The central bank has warned that those fuelling the three-tier pricing
that has emerged as market forces are overpowering the forced parity of
the surrogate currency face imprisonment of up to seven years.

President Robert Mugabe, in October last year, invoked the Presidential
Powers (Temporary Measures) Act to amend the Reserve Bank of Zimbabwe Act
to designate bond notes as legal tender.

Parliament passed the RBZ Amendment Bill (H.B. 12, 2016) this month, which
was gazetted unusually quickly. Speaker of the National Assembly Jacob
Mudenda gave notice in the Government Gazette announcing that the draft
bill had been transmitted to Mugabe for his assent and signature on March
7. The changes have now been given presidential assent.

Now, RBZ deputy governor Kupukile Mlambo has warned they were now moving
to deal with retailers fuelling the three-tier pricing system for bond
notes, swiping and US dollar.

The RBZ has finally acceded that the value of bond notes had tumbled. Some
importers have increased prices to compensate for the bond notes which has
seen an informal forex market discounting its value.

This comes as Zimbabwe’s inflation has moved into positive territory for
the first time in two years as a result of depreciating value in bond
notes. Consumers were absorbing the increase in prices of goods and
services as the surrogate currency has lost 30 percent in value, despite
attempts to rubbish the apparent fall in value by monetary and fiscal
authorities.

According to the Zimbabwean Statistical Office, the country recorded
inflation of 0.06 percent year-on-year (y-o-y) in February, compared to
deflation of 0.65 percent y-o-y in January.

The data underlines the malaise in the stuttering economy and just how
difficult it will be for policymakers to steer the economy out of the
biggest downturn in decades.

Zimbabweans are outrightly refusing to accept the bond notes as equivalent
to US dollars. This comes as US dollars have almost vanished from the open
market as banks refuse to dispense the currency to clients.

The RBZ has stated that no more bond notes will be released soon, in a bid
to avoid inflationary pressures through printing money. However, even if
the central bank stayed true to this announcement, bond notes will
gradually depreciate in value against the US dollar, which will add upward
pressure on inflation.

It started circulating a $5 bond note last month, after first issuing the
$2 note and $1 coin last November. The apex bank must let market forces
determine the true value of bond notes, not impose it through force of
diktat.