Counting the cost of bond notes: What Parliament should be aware of

In early November, Steve Hanke, a professor of applied economics at John Hopkins University in the United States and a renowned currency expert described the introduction of bond notes as “a way to completely contaminate the currency system”, akin to “putting poison in a bloodstream of a person”.

Source: Counting the cost of bond notes: What Parliament should be aware of – NewsDay Zimbabwe December 1, 2016

Financial sector spotlight: with Omen Muza

He didn’t stop there. He went on to discount the value of bond notes. “You know they are inferior from day one because government is, in a way, arguably offering a subsidy for people to take the bond notes, which means the bond notes are trading at a discount to the US dollar even before they start circulating,” Hanke said.

Although his pronouncements appeared melodramatic, his drift was that bond notes had attendant costs not related to their production and distribution but tied to their acceptability — almost like a bribe, in the form of the 5% export incentive.

My contention in this instalment is that there are more costs, which Zimbabweans should be aware of, and I discuss them accordingly.

This week (November 29 to December 3, 2016), the Parliamentary Portfolio Committee on Finance and Economic Development is conducting public hearings across the country on the Reserve Bank of Zimbabwe (RBZ) Amendment Bill, which seeks to pave way for the introduction of bond notes as.

Public views gathered through this exercise form part of the committee’s recommendations in a report to be tabled at the Second Reading Stage of the Bill in Parliament.

Accordingly, this could be of interest to lawmakers, as they seek to determine the viability of the bond notes project — not that we expect a reversal of the introduction of bond notes — we are not holding our breath — but, at least, there must be informed debate.

Printing costs

Although the RBZ has since declined to disclose the identity of the company which is now printing the bond notes, after their preferred printer was spooked (if not hounded) into declining the job by pressure groups, the apex bank has confirmed that this print job will be done outside Zimbabwe. Clearly, this will cost a considerable sum of money, which is due and payable in real US dollars.

Transport costs and cash handling costs

The bond notes and coins need to be transported to Zimbabwe at a cost that must be borne by the central bank on behalf of the government. Then there are local distribution costs, which will be passed on to banks. Under the new currency regime, cash handling costs of banks are expected to increase dramatically as they must ensure that bond notes are distributed to every branch in the country.

Marketing spend

Unlike normal cash in other hard currencies, for which only security features must be released for the benefit of the banking public upon introduction, bond notes have literally had to be marketed, as they faced resistance from the transacting public even before they were introduced.

In an attempt to change public perception of bond notes, RBZ has spent a considerable amount of money splashing advertisements in all the major newspapers and placing billboards in strategic locations, all of which, however, still don’t say much more than what we already knew about bond notes.

The bank has also commissioned live radio programmes or roadshows, which have, at times, failed to achieve the desired/intended effect, as they gave voice to disgruntled sections of society that are wary of a fast one being pulled on them.

Independent board

The monetary authorities have promised that they will constitute an independent board to monitor the printing of bond notes.

While the board’s oversight role is most welcome, as it is one of the checks and balances required to ensure that the RBZ does not print beyond the limit imposed by the $200 million Africa Export and Import Bank (Afreximbank) facility, which backs the notes, it will not come without its costs because the members will have to be compensated for their time and effort and there will be administration costs.

However, it is questionable that the RBZ has started distributing the bond notes before the independent board is in place.

Facility fees

The Afreximbank facility is not for free — there is interest and other fees such as drawdown fees to be paid. The RBZ, however, says the nature of the facility helps it to manage costs.

“This is a standby overdraft facility so that we do not incur costs. We pay on what we withdraw,” RBZ governor, John Mangudya said in mid-May.

Speaking in Parliament on Thursday June 23, 2016, Finance minister Patrick Chinamasa said the cost of the facility, which was around 5% per annum on drawn down amounts, would be borne by the government.

If the government acquiesces to industry’s demands for the incentive to be increased from 5% to 15%, the value of the facility would have to go up with its attendant costs in tow.


The introduction of bond notes has been met with several lawsuits from the likes of Zimbabwe People First leader, Joice Mujuru, businessman, Fredrick Mutanda and the Zimbabwe Lawyers for Human Rights.

Others such as the Zimbabwe Congress of Trade Unions have also threatened legal action.

These lawsuits need to be defended so the government and the RBZ have had to engage some of the country’s top legal minds to represent them, which obviously costs considerable sums of public funds.

Cost of multiple pricing structures

Already, there are reports that there are three pricing regimes in the market for goods and services depending on the mode of settlement — cash, plastic money or bond notes. Bond notes are clearly introducing higher costs to the doing business environment through their devaluation, which might have some inflationary impact.

Going for broke

Given all these costs and many others — which the government is still willing to bear, by the way, as long as the bond notes are introduced, there can be no doubt that it’s no longer just about the export incentive, but a means to a much bigger end.

If the Parliamentary Portfolio Committee intends to add some value to this debate, they should interrogate these costs to establish their quantum, so that in the spirit of accountability, Zimbabweans can at least be aware of the cost at which the bond notes are coming.

Omen N Muza edits the MFSB. You can view his LinkedIn profile at or initiate contact on