Zimbabweans agonise over bond notes

Despite central bank governor John Mangudya's best efforts to assure wary Zimbabweans that the introduction of the country's much-distrusted bond notes next month would only do the dying local economy a power of good, the sentiment among most people yesterday regarding the surrogate currency was decidedly negative.

Economic experts also told the Daily News that there was likely to be a renewed run on banks, or a frenetic attempt by depositors to deplete their accounts in the next few weeks, as people and corporates try to withdraw or use all their savings ahead of the introduction of the bond notes.

At the same time, political analysts warned that the surrogate currency FROM P1
could trigger more citizen unrest in the country, particularly after President Robert Mugabe's shocking decision to overturn Finance minister Patrick Chinamasa's unavoidable cost-cutting measures, which included suspending civil servants bonuses and taxing their allowances.

"The imminent introduction of bond notes is bad news for the general public and local business. If the matter is not handled with caution, it could be the straw that broke the camel's back, the trigger for more civil unrest and the collapse of the economy.

"Public confidence in the government's capacity to stick to fiscal prudence is at zero because past experience has taught people that the government cannot be trusted to print money willy nilly. And without public confidence, the audacious bond notes project could fail spectacularly.

"Perhaps Mugabe's plan is to use bond notes to pay bonuses and to pay a bloated civil service," human rights lawyer, Dewa Mavhinga, told the Daily News.

Former Finance minister in the government of national unity Tendai Biti said it was only natural that Zimbabweans were suspicious of the government and its intentions regarding the introduction of the bond notes.

"Despite efforts by...Mangudya, he has not succeeded in convincing Zimbabweans that the bond notes are not another way of re-introducing the Zimbabwean dollar because they do not trust the government anymore.

"Essentially, the social contract has broken down, and so, no matter how much they try to explain it, Zimbabweans will not accept the bond notes.

"The current panic withdrawals, high rate of externalisation, increase in tax evasion cases, the current demonstrations, increase in violence, and excitement over Mugabe's health, among other things, are all prices that we are paying as a result of the absence of trust," Biti said.

The People's Democratic Party (PDP) leader also said there was no guarantee that the government was going to stick to printing only $200 million worth of bond notes backed by a facility from Afrexim Bank of the same amount.

"There are no guarantees that government will not print more money beyond the $200 million. The only guarantee there can be is through an act of Parliament that allows public oversight on the government's activities. But you and I know that government will not do that," Biti added.

Veteran economist John Robertson also said the public had no way of knowing that the government was not going to "over-print" the bond notes.

"Bond notes are not going to address our fundamental problems. They are going to fail as a concept. Instead, we need a plan that can work if the problems we have are not to remain with us and worsen.

"We have always said that the introduction of the bond notes is not necessary … overprinting is an obvious danger, especially considering that this is the same government that printed worthless money before the era of the multi-currency system," he said.

Speaking on Thursday as he confirmed that the country would start using the much-distrusted bond notes next month, during his presentation of the monetary policy statement, Mangudya was upbeat about the surrogate currency.

"It is important to note that bond notes shall not be forced on people who do not like them. The bank is addressing the concerns by planning to introduce smaller denominations of bond notes of $2 and $5.

"In addition, the bank has proposed for the setting up of an independent board to have an oversight role on the issuance of bond notes in the economy. It is critical to emphasise that the introduction of bond notes does not mark the return of the Zimbabwe dollar through the back door," he said.

"The macroeconomic fundamentals or conditions for the return of the local currency are not yet right to do so. The issuance of bond notes has a self-control mechanism in that when there are no exports there will be no bond notes.

"At the rate at which the country is exporting and based on statistics…, we anticipate that bond notes equivalent to around $75 million will be in the market by end of December 2016," Mangudya added.

But last month the central bank had appeared to indicate that it was having second thoughts about bringing the bond notes into circulation, after it told the High Court — while responding to former Vice President Joice Mujuru's lawsuit — that the surrogate currency was still at "a planning stage".

Responding to Mujuru's lawsuit then, Mangudya described her court application as both "premature and ill-founded", adding, "Indeed bond notes, outside of a policy announced by Fourth respondent (RBZ), are still at planning stage.

"At no point has the (Reserve Bank) stated that bond notes are bank notes or indeed currency as defined in our laws, in particular the (Reserve) Act and the Bank Use Promotion Act (chapter 24:24).

"The entirety of applicant's (Mujuru) action is premised on bond notes constituting bank notes and, or currency when in fact there is absolutely no basis for reaching this conclusion," Mangudya said.

Mujuru had argued that bond notes were not provided for under the RBZ Act, adding that despite them being said to have the same value as the US dollar, they were bound to depreciate in value.

"Money is property and a bond note, not being money, can never substitute money. There is therefore an infringement of the right protected by Section 71(2) of the Constitution to the extent that holders of foreign currency will be forced to use or hold bond notes in the place of their money.

"Whatever the respondents may seek to say about the bond note, it is clearly a disguised Zimbabwean dollar that is being introduced through the back door.

"The law does not allow a back door approach. If they wish to re-introduce the Zimbabwean dollar they must follow the law and call it by name given its demonetisation.

"Just like the bearer cheques of the period before 2009, bond notes will not be worth the paper on which they will be printed, but will make the poor poorer as they will be made to lose the little valuable assets they have, such as livestock, to the privileged few who will be in possession of worthless bond notes," Mujuru said.

The announcement of the imminent introduction of the bond notes has caused panic among many Zimbabweans, as it revived ugly memories of the 2007 and 2008 economic era which was marked by severe food shortages and hyperinflation.

Last month, heavily armed riot police descended ruthlessly on hapless protesters who had gathered in Harare to protest over the country's deepening economic crisis, including the planned introduction of the bond notes.

Yesterday, police issued a month-long ban on protests in central Harare, as opposition parties were planning to hold demonstrations throughout the country tomorrow, to press for much-needed electoral reforms.

Mugabe, the only leader Zimbabweans have known since the country gained its independence from Britain in April 1980, is facing the biggest challenge to his 36-year rule.

Since the economy began experiencing serious turbulence, including witnessing banks running out of cash, the government is under growing pressure as angry Zimbabweans have mounted seemingly unending demonstrations.