Can bond notes work?

The answer to this question depends on what you want them to do, but if you want them to keep our economy – shops, vendors, banks, farms &c – running, the answer is “Kweteba!” “No way!!” A historical example might help.

Source: Can bond notes work? – The Zimbabwean June 7, 2016 By Magari Mandebvu

angeable yuan; you could both go to jail if you did the transaction in forex.
In theory the two kinds of yuan were equal in value, but you can see there were definite advantages in having exchangeable yuan, so the system was under pressure. It worked fairly well in the cities where there were many foreign visitors; coastal business centres such as Guangzhou and Shanghai. A tourist might not notice the difference between the two currencies. S/he could buy goods for 3 yuan, pay with a 5 yuan note and get 2 yuan change – either kind of yuan, because he could buy just as much with the “people’s money” as with the “exchangeable” yuan. But further from the coast and outside contacts, a different rate of exchange between the two applied. In major inland cities, such as Chengdu or Xian, if you paid 5 “exchangeable” yuan for 3 yuan of goods, you got at least 4 “people’s yuan”, and maybe as much as 7, change. They were accepting your “exchangeable” yuan as worth two “ordinary” yuan. The Chinese are sharp business people, so they were probably getting a better rate than that somewhere for every “exchangeable” yuan.
That was in major cities in a country where the government had much more control than ours ever did. Government still bought some 90% of everything produced in the country and was only just beginning to allow private traders to export directly, without selling their goods to a government agency which had, till then, controlled all foreign trade. Government could not control the exchange rate between the “people’s yuan” and the “exchangeable yuan” in major cities. I leave you to guess what the exchange rate between the two might have been. You could probably have bought yourself a wife in Tibet or the remoter corners of Xinjiang for a few “exchangeable” yuan. And I do mean a wife, not a one-night stand.
If your ears are not more than 2 metres above the ground, you must have heard that the black market price of “bond dollars” is already widely known and that rate would operate tomorrow if the bond notes were introduced then. As for the day after, that is anyone’s guess, but we would see them losing value much faster than the zimdollar ever did. In a short time, they’d be printing larger and larger denominations of “bond notes” which will always be worth less than their weight in toilet paper. Before very long, if we let them foist this nonsense on us, they’d have all the real money in the country and we’d only have paper you couldn’t even blow your nose on.
And you’ll see it start a soon as you buy $11 worth of groceries with a real $20 note; you’ll get 9 “Bond $” change and not be able to buy a kilo of tomatoes with that.
We can’t let that happen.

COMMENTS

WORDPRESS: 5
  • comment-avatar
    Private 6 years ago

    One good strategy with these currencies is to pay all government charges with them. Import duty, fines, taxes etc.

    The govt is the one claiming they are equivalent to the US Dollars. The solution? Keep your US Dollars, and use the bond notes for govt charges.

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    ntaba 6 years ago

    If the people accept the Zanu Bond Toilet Paper in the first instance – Zanu will have already conned the people out of their US$. The Bond Toilet Paper is for the Zanu Elite to print their own US$ to externalize. Simple. Call it what you may – Bearer Cheques, Gono $100 Trillion Kwacha or Bond Toilet Paper (The luxury you cannot afford) it is the same article and process – Zanu getting US$ for worthless pieces of paper with an RBZ signature and a Zimbird water mark.
    If the MDC accepts it like they did with the GNU (“we had to do something! – to help Zanu!”) – then the MDC are part of the problem……..

  • comment-avatar
    Johann 6 years ago

    The solution is not to even let them be accepted period. Why use them to pay taxes when they could print them to cover the taxes in any case?

  • comment-avatar

    “…if we let them foist this nonsense on us, they’d have all the real money in the country and we’d only have paper you couldn’t even blow your nose on..” Isn’t it worse than that? Have they not already half-foisted this on us?

    I’m no economist but if the banks have sold off our deposits to government for treasury bills that have been getting paid at maturity with TFs of non-existent money, our deposits are already halfway through the door. Once they are exchanged for bond notes, the ‘little problem’ between banks, the RBZ and MOF will have been ‘solved” and our deposited money effectively gone – in a puff of smoke, like the magician’s trick it was from the beginning.

    Lawyers, is it not legally possible for us to start class actions against these banks for having converted our deposits into non-existent balances? They in turn would have to take on the RBZ and then the RBZ and MOF would have to explain to us, the people, what madness they have been carrying on with the banks.

  • comment-avatar
    Roberta Mugarbage 6 years ago

    “If we let them foist this nonsense on us, they’d have all the real money in the country and we’d only have paper you couldn’t even blow your nose on.”

    This is very true. Printing bond notes is stealing from the people!