News / National
Mnangagwa urged to 'Scrap bond notes'
06 Sep 2018 at 15:46hrs | Views
PRESIDENT Emmerson Mnangagwa's new administration should consider scrapping bond notes, as a way of restoring confidence in the economy, industrialists have said.
Zimbabwe introduced the surrogate currency nearly two years ago as a way of easing the country's cash crisis, but the situation has not changed much as financial institutions continue to limit daily withdrawals.
This has resulted in market analysts and business leaders urging the government to come up with a permanent solution to the country's debilitating cash crisis, which has heavily crippled the productive sector.
Oswell Binha, the CEO Africa Roundtable chairman, told The Financial Gazette that bond notes should now be discarded as they have failed to stem the cash shortages.
"Bad money chases away good money. The bond notes have outlived their purpose and citizens no longer have a saving culture due to fear of their money losing value," he said. Although government insists that the notes are equal to the greenback in value, they are being sold on the parallel market at a discount of 25 percent.
Zimbabwe abandoned its local currency in February 2009 after an economic collapse saw inflation surge to about 500 billion percent, according to the International Monetary Fund, and it uses a basket of currencies which include the United States dollar and the South African rand.
Binha further indicated that the sustained creation of real time gross settlement (RTGS) balances by government was inflationary and the continued use of the bond notes exacerbated uncertainty.
"A number of international businesses in Zimbabwe are considering closing shop and relocating elsewhere because they cannot repatriate their proceeds. Monetary authorities should of necessity study and innovate with other digital proposals rather than shutting them out completely," he said.
Renowned economist Professor Ashok Chakravati recently indicated that as long as Zimbabwe uses the greenback, the country would continue to face liquidity crunches.
He added that Zimbabwe needs a non-convertible and non-externalisable currency which is weaker to the US dollar.
Zimbabwe National Chamber of Commerce (ZNCC) chief executive Christopher Mugaga, however, said bond notes were not the problem, but rather the banking sector legislative environment that allows the government to borrow through the central bank.
He said the biggest challenge at the moment is the virtual money printing by the Reserve Bank of Zimbabwe (RBZ) through the RTGS balances, which no longer match available cash deposits and such in circulation.
"Even if the bond notes are removed today, and the banking environment does not change, we will still be stuck with the virtual balances now with need to liquidate them into US Dollars," he said.
Mugaga said as part of a long term solution, the RBZ Act should be adjusted so that it becomes unnecessary to have an overdraft with government.
The trained economist urged the central bank to stop allocating foreign currency and creating priority lists, as this should be determined by the market.
"How can they allocate what they done have and they are not even generating the foreign currency?" he queried.
Zimbabwe introduced the surrogate currency nearly two years ago as a way of easing the country's cash crisis, but the situation has not changed much as financial institutions continue to limit daily withdrawals.
This has resulted in market analysts and business leaders urging the government to come up with a permanent solution to the country's debilitating cash crisis, which has heavily crippled the productive sector.
Oswell Binha, the CEO Africa Roundtable chairman, told The Financial Gazette that bond notes should now be discarded as they have failed to stem the cash shortages.
"Bad money chases away good money. The bond notes have outlived their purpose and citizens no longer have a saving culture due to fear of their money losing value," he said. Although government insists that the notes are equal to the greenback in value, they are being sold on the parallel market at a discount of 25 percent.
Zimbabwe abandoned its local currency in February 2009 after an economic collapse saw inflation surge to about 500 billion percent, according to the International Monetary Fund, and it uses a basket of currencies which include the United States dollar and the South African rand.
Binha further indicated that the sustained creation of real time gross settlement (RTGS) balances by government was inflationary and the continued use of the bond notes exacerbated uncertainty.
"A number of international businesses in Zimbabwe are considering closing shop and relocating elsewhere because they cannot repatriate their proceeds. Monetary authorities should of necessity study and innovate with other digital proposals rather than shutting them out completely," he said.
Renowned economist Professor Ashok Chakravati recently indicated that as long as Zimbabwe uses the greenback, the country would continue to face liquidity crunches.
He added that Zimbabwe needs a non-convertible and non-externalisable currency which is weaker to the US dollar.
Zimbabwe National Chamber of Commerce (ZNCC) chief executive Christopher Mugaga, however, said bond notes were not the problem, but rather the banking sector legislative environment that allows the government to borrow through the central bank.
He said the biggest challenge at the moment is the virtual money printing by the Reserve Bank of Zimbabwe (RBZ) through the RTGS balances, which no longer match available cash deposits and such in circulation.
"Even if the bond notes are removed today, and the banking environment does not change, we will still be stuck with the virtual balances now with need to liquidate them into US Dollars," he said.
Mugaga said as part of a long term solution, the RBZ Act should be adjusted so that it becomes unnecessary to have an overdraft with government.
The trained economist urged the central bank to stop allocating foreign currency and creating priority lists, as this should be determined by the market.
"How can they allocate what they done have and they are not even generating the foreign currency?" he queried.
Source - fingaz
