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Monetary Policy: RBZ Explains Bond Notes Shortage

The long bank queues witnessed after the recent introduction of bond notes are set to disappear in the coming weeks, according to the centr...

The long bank queues witnessed after the recent introduction of bond notes are set to disappear in the coming weeks, according to the central bank governor Dr John Mangudya, who promised in his Mid-Term Monetary Policy Statement to release about US$75 million worth of bond notes by year end.

The bond notes are anchored on a US$200 million facility backed by the Afreximbank and are pegged 1:1 to the US dollar and are an export incentive to encourage exporters to bring proceeds back home.

Small-scale exporters get 5 percent while large-scale exporters rake in 2 percent for all their exports once the proceeds are remitted to Zimbabwe. 

Essentially, bond notes were designed to discourage money laundering, which is reportedly been happening on a large-scale as some exporters opted to keep money outside the country.

But in the face of a liquidity crunch, the RBZ has allowed banks to issue the bond notes to depositors to ease shortages of US dollar bills in the market so as to stimulate transactions across.
Long Bank Ques in Zimbabwe 

The RBZ introduced the first tranche of US$10 million worth of the surrogate currency last week and in a show of confidence, depositors have been stampeding to withdraw the bond notes.

This saw most banks across the country running out of bond notes almost daily. RBZ Deputy Governor Dr Kupukile Mlambo told The Sunday Mail Business last week that the shortage of bond notes is an indication that citizens have warmly received the surrogate currency.

“Well, the thing is that we said we are bringing in US$10 million into circulation; so it was very important that we do that. So I think it (shortage of bond notes in banks) is also a sign that people are starting to accept the money.

“I know that there has been an exchange rate at Roadport (in Harare) but generally, the people seem to understand what we are trying to do and they are demanding them and when they are given they take,” said Dr Mlambo.

The RBZ is introducing the bond notes in phases to avoid unintended consequences such as inflation and rent-seeking behaviour especially by foreign currency traders. Crucially, the RBZ would feel that the heavy albatross that officials were carrying prior to introduction of bond notes has been removed as there were campaigns to discredit the currency.

The RBZ which is battling to regain the confidence of depositors following the hyperinflation of 2008 that was blamed squarely on the apex bank’s shoulders because of its quasi-fiscal activities and allegations of unrestricted printing of the Zim dollar.

In the Mid-Term Monetary Policy Statement, RBZ boss Dr John Mangudya said he would issue US$75 million worth of bond notes by year end so as to instil confidence in the market. The central bank has already passed the first test of financial discipline after keeping its word on the issuance of bond coins, with only US$15 million being introduced.

Bond coins, which first came into circulation in December 2014, are backed by a US$50 million facility. As early as late Monday last week, most parts of the country’s rural areas had had sight of the bond notes. Traditionally, rural areas have challenges with access to information due to the cost, which ordinarily make villagers vulnerable to receiving inaccurate information, if at all.

Retailers are already accepting bond notes — and using them at stipulated rates — in the rural areas, much to the convenience of shoppers. Dr Mlambo, who said he was in rural Kezi, Matabeleland South province last Thursday, used bond notes to buy at a local store.

“I am not in Harare at the moment, I am in the village. I have just stopped to buy water at a shop here in Kezi and asked if they have bond notes and they said ‘yes, we have them’.

“I then asked, ‘how are you using them’; is there an exchange rate between the US dollar and the bond note’, and they said ‘no, for us it is 1:1’. So the problem is Harare, I think out here, I can tell you that people are using the bond notes,” said Dr Mlambo.

Similarly, in other rural areas such as Mberengwa, in the Midlands province, villagers and professionals admitted to having seen, and using bond notes without hassles.

A nurse at Mnene Mission Hospital who declined to be named said she got the bond notes in Zvishavane last Thursday and used them without hassles in OK Zimbabwe supermarket, and later as bus fare on her way back to work.

“I have seen the bond notes and it seems everyone is accepting them without reservations. We can buy bread at the local shop at Mnene Mission and buses are accepting them.

“The only problem is that we are getting messages through social media platform, WhatsApp indicating that in Harare, they are ‘rating’ the bond notes against the US dollar so some traders here are contemplating doing the same,” she said.

Just a few villagers in other parts of the country had not seen the bond notes by Friday but said they were aware of them courtesy of radio adverts. The RBZ commenced awareness campaigns for bond notes early November, despite that there were no specimens for the bond notes and the security features.

Last week, the RBZ was continuing with awareness campaigns around the country, this time targeting both urban areas and growth points. Officials from the consumer watchdog, Consumer Council of Zimbabwe (CCZ), teamed up with the RBZ to promote the use of bond notes.

On Friday, the teams were in Kwekwe. Chiundura, a rural area, had been covered the previous day. An RBZ official who is part of the team said the awareness campaigns are now “making sense because we will be educating the public on bond notes that we will be in possession of, unlike the first phase when we didn’t have the notes”.

It is envisaged that the bond notes awareness campaigns will continue until year end. - Sunday Mail 

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