Central bank mulls more bond coins

via Central bank mulls more bond coins – The Zimbabwe Independent October 30, 2015

ZIMBABWE could be forced to mint hundreds of millions worth of bond coins to meet the demand for smaller denominations and end the current change crisis, a Reserve Bank of Zimbabwe (RBZ) official has said.

Taurai Mangudhla

If the current confusion arising from continued devaluation of the South African rand against the US dollar persist, Zimbabwe could be forced to mint more bond coins to meet growing demand for the bond backed currency as consumers ditch the South African rand coins whose value continues to fall.

The economy’s demand for lower denominations is estimated at as much as US$447 million, based on official money supply statistics.

Already, Zimbabwe has US$20 million worth of bond coins in circulation.

Asked to give the amount of coins sufficient to meet the country’s change needs, an senior official at the central bank said: “It’s not easy to determine the amount of coins we need because the economy has undergone a fundamental structural change over the past 15 years, but under normal circumstances, small denominations would be between 5 and 10% of money in circulation.”

Monthly broad money supply growth declined by 0,02% from US$4,474 billion in July to US$4, 473 billion in August 2015, according to an August RBZ monthly economic review.

Prior to December 2014, Zimbabweans suffered a change crisis that forced many citizens to accept sweets or other items as change.

At best, consumers were given tokens that were equivalent to money but only accepted at the issuing outlet.

This was a result of lack of coins as the country struggled to import adequate change after adopting a multiple currency regime in 2009.

Although the multiple currency system had been dominated by the US dollar, the South African rand coins topped smaller denominations as the US coins are heavy and expensive to import considering too the distance between Zimbabwe and the USA.

The Reserve Bank of Zimbabwe is on record saying shipping the US coins from the USA can cost Zimbabwe millions of US dollars which will make the production and importation price above the real value of the coin.

Naturally, the economy resolved to use South African rand coins.

However, the South African rand coins were not enough to meet demand, with change problems being witnessed more in areas that are further from the Zimbabwe and South African border.

To fix the problem, RBZ governor John Mangudya, introduced bond coins in December 2014 that were to be distributed through normal banking channels in denominations of 1c, 5c, 10c and 25c, while the 50c coin was to be later introduced in March 2015.

The value of the bond coins is at par with the US cents.

The value of bond coins is guaranteed by a fifty million dollar bond facility hence the term bond coins.

“Bond coins are meant to provide change and their usage should have an impact of rounding down prices. Bond coins give an option for change as they are being used to buttress the multiple currency regime,” said the RBZ in a statement.

The bond coins were at first treated with some suspicion, firstly in terms of their ability to store value versus the foreign currencies given the reputation left by the Zimbabwean dollar during the hyperinflation era and as a way in which government was attempting to smuggle back a defunct local currency.

A few months later, retailers and informal business preferred the bond coins to South African rands mainly because their value is equal to the US dollar.

The new change system has however been disrupted, due to continued devaluation of the South African rand against the US dollar.

As the rand continued to fall, retailers were quick to start exchanging coins at the official rates, prompting informal business and transport operators to follow suit.

Transport operators, for instance, are accepting 50cents bond coins that are at par with the US cents for a one way trip around Harare or at least R6. The public transport operators are charging as much as R7 per trip.

Problems around the country’s currency date as far back as early 2000 with the economy having to abandoning coins in 2002 as inflation rates skyrocketed.

By 2008, the country was stuck with a local currency that had lost value due to hyperinflation, prompting citizens to adopt foreign currencies illegally or use fuel coupons as cash.

Southern Eye columnist Sithandekile Magida said adequate availability of smaller denominations is a relief to consumers as lower denominations are exchanged more often in one’s day-to-day life to buy daily essentials such as bread, milk, vegetables and other products that are consumed daily in households.

Consumer Council of Zimbabwe (CCZ) executive director Rosemary Siyachitema said rating of South African rand is a sign reality has set in.

“It was inevitable because these are two currencies we are talking about. What the retailers are doing is not at all illegal,” she has said.

“However, retailers choose to act in a way that benefits them.

When there was no change they gave consumers sweets and when the bond coins came they resisted and eventually treated them as though they were at par with the rand but now they prefer the bond coins,” added Siyachitema.

The CCZ executive said government should carryout proper studies to determine whether or not there is need for minting more bond coins.

“It should not be a rushed decision because when they introduced bond coins people were skeptical, they felt RBZ was introducing the Zim dollar.

Now they have to carry out proper research and determine whether we need them or not because you can have lots of bond coins and then the rand bounces back.”