The Reserve Bank of Zimbabwe introduced the bond note in November 2016 as an export incentive to exporters. Initially the incentive was pegged at 5 percent but now it varies depending on the product in question.
Officially, Governor Dr John Mangudya indicated that the “surrogate currency” was at par with the United States dollar meaning one (1) bond note was equivalent to one (1) US dollar.
In his own words, Dr Mangudya says that the bond note was a success. He had promised to resign had the bond notes failed.
When the bond note was introduced some sixteen (16) months ago, there was no multiple pricing in Zimbabwe; the value of the US dollar locally was at par with the value of the US dollar abroad.
The public accepted/embraced the use of the bond note but what the monetary authorities need to take note of is the unintended consequences that we are witnessing in the country before they conclude that because exports increased over the review period, the “surrogate currency” was a success. Maybe it is a statement to justify why he has not resigned up to now.
The black market is thriving with premiums ranging from 30 percent to 40 percent when one is buying the greenback using cash and RTGS respectively.
Now, this only points to the fact that the one to one assumption by the monetary authorities is only artificial because no one is getting the USD at that rate unless if you are highly connected or powerful such that banks can reserve a few dollars for such depositors.
Depositors from across all banks are given bond note and bond coins (5, 10, 25, 50 and 1 denominated) and face a different price when buying goods or paying for services as companies charge a premium. Purchasing power has been eroded by at least 50 percent as prices on average have increased by that factor in some instances hence it maybe misleading for the governor to say it was a success.
In reality, the deposit balances in bank accounts are not worth the same in US dolar, as depositors have to contend with the 40 percent to 50 percent premium they are paying as companies have already factored in that cost of sourcing foreign currency on the black market.
In the event of currency conversion, what will these values be? These are just a few indications that the bond note brought more pain than positives in the country since its introduction.
The other issue is, how realistic is it to measure the assets and liabilities in banks to the international value of the US dollar. This is a question to the bankers. The argument is, if we are using the US dollar, assets here in Zimbabwe should have the same value internationally. Is this the case realistically?
The governor highlighted that the introduction of the bond note was not intended to solve the cash shortage.
However, in reality, it is difficult to dismiss the notion that it was part of the measure to solve the cash crisis.
The cash shortage is persisting sixteen (16) months later meaning notwithstanding their denial that it was not intended for that purpose, it has failed.
What has been happening in the market is that the “bad money” has chased away the “good money”. The growth in exports as alluded to by the Governor may not be the only yardstick to measure the success of a policy, as they are other factors that can be used to explain that growth.