'Bond note woes to linger'

Zimbabwe's currency woes will linger as long as its awkward monetary system remains, a research think-tank BMI has said.

The country's cash system is currently made up of a concoction of currencies, which includes the bond notes, a pseudo currency said to be backed by an Afreximbank facility.

Central bank governor John Mangudya last week announced a mid-term monetary policy which among other things asserted that the cumbersome cash system will remain, at least in the short to medium term.       

"In the coming year, Zimbabwe's cumbersome and inefficient monetary system will remain in place, constraining economic growth through higher-than-reported levels of price growth and through businesses' difficulties in accessing imported goods and services," The research firm said in the November, 2018 edition of its Africa Monitor report.

In the lead up to the announcement of the monetary policy, there had been heated debate on whether the country's monetary authority should consider immediate currency reforms such as the scraping of the bond notes and or joining the rand union. Government has, however, decided against any such reforms, in the short term at least.

BMI says engagement with concessional lenders, which the government says is among its priorities, will put the economy in position to consider currency reforms.

"Over the longer term, efforts to bolster foreign investment and re-establish ties with multilateral organisations such as the IMF will begin to bear fruit, boosting hard currency flows into the economy and positioning the country to adopt a new exchange rate regime," BMI said.

"It remains unclear which new regime they will adopt with options including de-dollarisation, re-dollarisation or joining the rand union but all of these will require substantial reserve buildup before they can be sustainable," it added.

The research firm maintains that the current system is not sustainable asserting that the monetary authorities will eventually be forced to consider its options.

"The current system will not permit an economic recovery and we therefore think that the authorities will be forced to make efforts to change the system.

"At this stage, it is not clear what avenue the authorities will go down in terms of currency reform but we believe that there are three viable options.

"The success of all of these options will hinge on the country building up of sufficient foreign exchange reserves to support the chosen currency regime's sustainability," the think tank said. -