Business / Economy
'Bond notes good BUT . . !'
06 May 2016 at 03:33hrs | Views
ECONOMIC analysts say the proposed $200 million bond notes will offer a temporary relief to biting cash shortages in the country and pointed to an urgent need to address economic fundamentals that will allow for speedy economic turnaround.
Experts say the liquidity crunch, which has seen depositors spending days in queues at banks due to cash shortages, was a symptom of deep seated economic loopholes that require holistic macro-economic approaches.
Reserve Bank of Zimbabwe (RBZ) governor John Mangudya on Wednesday announced a raft of measures to curb illicit cash outflows while promoting widespread use of multi-currencies that were adopted in 2009.
The measures include the introduction of bond notes in denominations of $2, $5, $10, and $20 – probably in two months' time – which will be an extension of the bond coins already in circulation.
The planned bond notes are backed by a new $200 million bond from Afreximbank. The bond coins and bond notes derive their name from the fact that they are guaranteed by a bond facility.
The move has induced panic in the banking and transacting public who fear the proposal is a precursor to the return of the dreaded "bearer cheques" that were abandoned at the height of hyperinflation.
As part of the package, Mangudya said the central bank was converting, with immediate effect, 40 percent of new US dollar foreign exchange receipts to the rand and 10 percent to euros.
This is aimed at ensuring widespread use of currencies and minimising against concentration risk of using the US dollar.
"The fear that bond notes will make people lose their money is misplaced. Bond coins are good for local transactions," said Reginald Shoko, an economic analyst.
"There's no need to panic because at the moment everyone in Zimbabwe is a holder of a foreign currency account. However, the problem here is about trust. At the moment the barometer of trust between banks and the public is compromised.
"What the RBZ has done is to address the symptom of a big problem. It's high time we address economic fundamentals and have our own currency. Bond notes will save us now but not in the future. As long as we're a supermarket economy we'll continue to lose hard cash."
Given the influx of imports and low domestic industry capacity utilisation at about 34 percent, economists contend that at the moment Zimbabwe does not have the requisite export base and a trade balance to support a return of its own currency.
Zimbabwe National Chamber of Commerce former president Trust Chikohora said while bond notes would ensure availability of cash in the market, creating confidence and business viability could be a challenge.
"It still remains to be seen whether the bond notes will be accepted by the market or not. Even for the banking public, people may be scared of taking their money to the bank fearing that they will be given the bond notes," he said.
Another economic analyst Davison Gomo described Mangudya's package as "the best of the worst" options available.
"One thing that needs to be appreciated is that Zimbabwe isn't running on its own currency. When dealing with currencies, the issue is about creating trust and confidence and the dominance of the US dollar over other currencies is also to do with the strength that it has over other currencies," he said.
The RBZ has also capped maximum cash taken outside the country at $5,000 from $10,000 and R20,000 with immediate effect.
It also reviewed maximum daily cash that can be taken inside a banking hall and at the ATM to $1,000 for US dollar and Euro, and R20,000.
This is meant to ensure rationing out so that everyone has something although individuals and business will have to withdraw several times.
On conversion of 40 percent of new US dollar foreign exchange receipts to the rand, Gomo warned that since the rand was a volatile currency, it appears the exchequer was now being coerced to do the conversion.
"This is despite the fact that the exchequer is among other reasons already suffering from the decreasing commodity prices. As Zimbabwe, we're a net importer and if forex continue to disappear the local currency will eventually bounce back at a time when economic fundamentals that promote economic growth aren't addressed," he said.
Economic lecturer Bongani Ngwenya said the measures announced by Mangudya were meant to deal with the supply side of the multi-currency.
"From the RBZ, l was hoping the starting point would be coming up with financial inclusion where the informal sector becomes bankable.
"As a country, we should be coming up with strategies to grow and improve liquidity inflows into the economy," he said.
"Once there's improvement in liquidity, liquidity outflow will naturally correct itself because I don't see the reason to want to siphon money outside the country.".
Experts say the liquidity crunch, which has seen depositors spending days in queues at banks due to cash shortages, was a symptom of deep seated economic loopholes that require holistic macro-economic approaches.
Reserve Bank of Zimbabwe (RBZ) governor John Mangudya on Wednesday announced a raft of measures to curb illicit cash outflows while promoting widespread use of multi-currencies that were adopted in 2009.
The measures include the introduction of bond notes in denominations of $2, $5, $10, and $20 – probably in two months' time – which will be an extension of the bond coins already in circulation.
The planned bond notes are backed by a new $200 million bond from Afreximbank. The bond coins and bond notes derive their name from the fact that they are guaranteed by a bond facility.
The move has induced panic in the banking and transacting public who fear the proposal is a precursor to the return of the dreaded "bearer cheques" that were abandoned at the height of hyperinflation.
As part of the package, Mangudya said the central bank was converting, with immediate effect, 40 percent of new US dollar foreign exchange receipts to the rand and 10 percent to euros.
This is aimed at ensuring widespread use of currencies and minimising against concentration risk of using the US dollar.
"The fear that bond notes will make people lose their money is misplaced. Bond coins are good for local transactions," said Reginald Shoko, an economic analyst.
"There's no need to panic because at the moment everyone in Zimbabwe is a holder of a foreign currency account. However, the problem here is about trust. At the moment the barometer of trust between banks and the public is compromised.
"What the RBZ has done is to address the symptom of a big problem. It's high time we address economic fundamentals and have our own currency. Bond notes will save us now but not in the future. As long as we're a supermarket economy we'll continue to lose hard cash."
Given the influx of imports and low domestic industry capacity utilisation at about 34 percent, economists contend that at the moment Zimbabwe does not have the requisite export base and a trade balance to support a return of its own currency.
"It still remains to be seen whether the bond notes will be accepted by the market or not. Even for the banking public, people may be scared of taking their money to the bank fearing that they will be given the bond notes," he said.
Another economic analyst Davison Gomo described Mangudya's package as "the best of the worst" options available.
"One thing that needs to be appreciated is that Zimbabwe isn't running on its own currency. When dealing with currencies, the issue is about creating trust and confidence and the dominance of the US dollar over other currencies is also to do with the strength that it has over other currencies," he said.
The RBZ has also capped maximum cash taken outside the country at $5,000 from $10,000 and R20,000 with immediate effect.
It also reviewed maximum daily cash that can be taken inside a banking hall and at the ATM to $1,000 for US dollar and Euro, and R20,000.
This is meant to ensure rationing out so that everyone has something although individuals and business will have to withdraw several times.
On conversion of 40 percent of new US dollar foreign exchange receipts to the rand, Gomo warned that since the rand was a volatile currency, it appears the exchequer was now being coerced to do the conversion.
"This is despite the fact that the exchequer is among other reasons already suffering from the decreasing commodity prices. As Zimbabwe, we're a net importer and if forex continue to disappear the local currency will eventually bounce back at a time when economic fundamentals that promote economic growth aren't addressed," he said.
Economic lecturer Bongani Ngwenya said the measures announced by Mangudya were meant to deal with the supply side of the multi-currency.
"From the RBZ, l was hoping the starting point would be coming up with financial inclusion where the informal sector becomes bankable.
"As a country, we should be coming up with strategies to grow and improve liquidity inflows into the economy," he said.
"Once there's improvement in liquidity, liquidity outflow will naturally correct itself because I don't see the reason to want to siphon money outside the country.".
Source - chronicle
