Bond notes to come at a premium- Mutodi

Controversial Zanu PF activist Energy Mutodi has said money changers in Harare are anticipating brisk business when the Reserve Bank of Zimbabwe launches bond notes in summer.

He said due to the ensuing cash crisis, the black market money changers are already charging between 10% to 15% premium to provide hard cash against electronic money transfers.

"This means that money in your bank account is at least 10% less in value compared to cash. This discrepancy is set to increase when the RBZ introduces bond notes which it says will be in B2, B5, B10, and B20 bills," Mutodi said.

"Their introduction will ease cash disbursement by banks to their clients but will not remove the cash premium as ordinary citizens who import various items for resale and consumption from mainly South Africa, China and UK will need to change the bond notes into US dollars; allowing money changers to eat into their earnings at least by 10%. This situation can further be worsened if a withdrawal limit remains in place even after the bond notes are introduced."

Mutodi said the Zimbabwean financial market is not efficient and as such some depositors have a better access to cash than others.

"This has allowed well connected individuals to obtain cash at a lower cost and resale it at a higher cost to desperate small scale unlicensed importers and travelers. Firms with high cash sales such as Econet are already busy selling cash to desperate citizens. The Zimbabwean authorities are therefore creating a unique arbitrage situation involving cash that must be operating as a medium of exchange and not a risk asset," said Mutodi.

"Arbitrage is a situation where an asset attracts different prices in two competitive markets such that arbitragers buy the asset in the market where it is lowly priced and sell it in the market where it attracts a higher price; thereby making a profit.
The arbitrage opportunity dries away when the price for the asset becomes uniform in both markets due to demand and supply forces. This is called the law of one price."

He said even if the RBZ is saying it is offering exporters an export bonus of 5%, the benefit is outweighed by transaction costs that are at an average of 12,5%.
It is highly likely that the RBZ had anticipated the increase in transaction costs precipitated by the cash crisis when it announced the 5% export bonus.

He said meanwhile the cash crisis has already resulted in the shooting up of commodity prices as retailers transfer arbitrage and transaction costs to consumers.

"Basing on cooking oil prices, inflation on groceries as a result of the cash crisis stands at between 25-40%. Zimbabwe is facing a crippling economic crisis that emanates from economic mismanagement, lack of legitimacy on the part of national leaders and rampant corruption," he said.

"Ministers top the list of corrupt individuals in the country as they use their proxies to siphon funds from government-controlled firms, investing the loot outside the country's borders. Now in his old age at 92, Mugabe is no longer effective in his role as he lacks capacity to tame his marauding corrupt ministers some of them his relatives."

Mutodi said the President has also been compromised by a G40 faction that purports to have his blessing and that of his wife as it relegates war veterans who are the founders of the liberation struggle and the country's independence to the terraces in national politics, a situation that has adversely affected his popularity among party members.

"Social media is now awash with calls for Mugabe to step down and allow a new leader to emerge who can solve the country's political, social and economic problems," he said.