Business / Companies
Bond notes fiasco: Importers stranded
27 Jan 2017 at 01:15hrs | Views
THE introduction of bond notes has put ordinary Zimbabweans and importers in a rut with many facing bottlenecks as some local banks reject the use of the fiat money for foreign payments amid a severe shortage of US dollars that has paralysed the economy.
Zimbabwe has been facing foreign currency shortages since last year as shown by long, winding queues at banking halls and demand for cash-backs in supermarkets. Since the introduction of the multi-currency system in 2009, the United States dollar has been the dominant currency.
As first reported by the Zimbabwe Independent last November, local banks, which on the surface appear to be supporting the introduction of US$200 million worth of the new promissory currency in bond notes into the market, are now raising concerns over chaos on accounting standards and operational headaches since the introduction of the bond notes.
Bank executives who spoke to this paper said most local banks are having challenges accepting the currency to fund import payments for customers as they cannot carry out cross-border transactions.
The Reserve Bank had initially indicated that upon expiry of the bond notes (when exports reach US$6 billion), those customers who would have deposited foreign currency would be entitled to demand their funds in foreign currency.
"In principle if a customer deposits the bond note, that note cannot be used to carry out any cross-border payments or fund prepaid cards (VISA/MasterCard). As it stands now other banks have taken the stance that they do not accept bond notes for prepaid cards or cross-border payments," a senior banker with a local financial institution, who spoke on condition of anonymity, said.
"We are also facing challenges from some customers that have requested that their USD accounts should not be diluted with the bond notes despite the currency being at par with the greenback. The challenge with this request is how banks can comply with such an instruction from a customer given that the Reserve Bank of Zimbabwe turned down our proposal to have mirror accounts for bond notes and more so it has reiterated that the notes are at par value with USD."
"…Another concern that the industry is raising is that before the introduction of the bond note, banks were made to understand that if a customer intends to carry out a cross-border payment, the bank would present the bond notes to the RBZ and the central bank would supply the US dollars. However, practically this is not happening on the ground."
The bankers have also raised concerns on automated teller machines (ATMs) which they say are configured to dispense money below the daily withdrawal limits, thereby pushing the cost to the customer.
"From an operation point of view, our machines have also been affected by bond notes. ATM operations are currently being affected by the small denominations because the cassettes can only take up to a maximum of 40 notes, which means customers have to perform several transactions resulting in build-up of queues and accelerated wear and tear of the machines, hence $5 bond should be introduced urgently," another executive working for a foreign-owned bank said.
Bond notes, according to Reserve Bank of Zimbabwe (RBZ) governor John Mangudya, are backed by a US$200 million African Export and Import Bank (Afreximbank) facility and are largely an export incentive.
Official figures show that total exports stood at US$2,83 billion against a projected target of US$3 billion while imports were at US$5,21 billion, resulting in an annual trade deficit of US$2,38 billion.
When reached for comment on challenges being faced by banks since the introduction of bond notes, central bank governor John Mangudya said this was yet to be brought to his attention.
"We are not aware of the banks that are refusing to accept bond notes to fund cross-border transactions. Cross-border transactions are effected from debiting foreign exchange accounts of the transacting party or entity. Such transactions require funding in the country's nostro accounts," Mangudya said in a written response to questions sent by the Independent.
"The bottom line is that the country needs to enhance exports and other foreign exchange receipts in order to sustain its import requirements. We need to enhance productivity across all the sectors of the economy. As previously advised, the $5 bond notes shall be released into the market in February 2017, in line with the release of the export incentive scheme pay-outs which basically conforms to the drip-feed process in sympathy with export receipts."
The Bankers Association of Zimbabwe (BAZ) said bond notes had played a role in easing the cash shortages, adding that they were not a permanent solution to problems besetting the economy.
"The introduction of bond notes has reduced further foreign currency leakages as the notes are only useful within the country. The notes have resulted in the improved availability of cash in the market and queues at banks have substantially reduced. Bond notes are however not a panacea for cash shortages as the under US$80 million worth of bond notes so far issued to the market, as published in the media by the Reserve Bank of Zimbabwe, is a minor part of the overall money in circulation in the country," BAZ president Charity Jinya said in a written response to emailed questions .
"It is important to understand that bond notes are legal tender meant for internal circulation within Zimbabwe and cannot be used to finance offshore payments. They have thus relieved banks of part of the burden of importing foreign currency notes from offshore, and these resources are being availed to critical import payments.
"The banking public is encouraged to make greater use of electronic payment channels to reduce demand for cash and banks are working round the clock to ensure that more point of sale devices are availed to businesses for the convenience of the public."
In 2013, the Supreme Court ruled in favour of China Shougang International which had sued Standard Chartered Bank for not reimbursing its deposits worth nearly US$48 000 which were raided by the RBZ during its quasi-fiscal operations at the height of the economic meltdown and hyperinflation which ended after the introduction of the multi-currency regime in 2009.
Banking officials are also raising concerns over the lack of transparency on the US$200 million Afreximbank facility after President Robert Mugabe invoked the Presidential Powers (Temporary Measures) Act to gazette Statutory Instrument 133 giving legal effect to the introduction of bond notes.
As it stands, the banking sector relies on official figures released by the apex bank on the current holdings of bond notes.
Early this month the central bank more than doubled the current holdings of bond notes to US$73 million in just less than a month as the central bank moves to ease a biting cash crunch amid concerns the apex bank could run the printing press unabated.
Banking officials further said while bond notes have relatively eased the cash crunch, failure by government to constitute an independent committee to oversee the supply of bond notes into the market could dampen market confidence.
Meanwhile, the government says it is still crafting a statutory instrument that will give legal effect to the setting up of the panel despite initial assurances by the central bank that the committee would be in the place when the bond notes were introduced.
Zimbabwe has been facing foreign currency shortages since last year as shown by long, winding queues at banking halls and demand for cash-backs in supermarkets. Since the introduction of the multi-currency system in 2009, the United States dollar has been the dominant currency.
As first reported by the Zimbabwe Independent last November, local banks, which on the surface appear to be supporting the introduction of US$200 million worth of the new promissory currency in bond notes into the market, are now raising concerns over chaos on accounting standards and operational headaches since the introduction of the bond notes.
Bank executives who spoke to this paper said most local banks are having challenges accepting the currency to fund import payments for customers as they cannot carry out cross-border transactions.
The Reserve Bank had initially indicated that upon expiry of the bond notes (when exports reach US$6 billion), those customers who would have deposited foreign currency would be entitled to demand their funds in foreign currency.
"In principle if a customer deposits the bond note, that note cannot be used to carry out any cross-border payments or fund prepaid cards (VISA/MasterCard). As it stands now other banks have taken the stance that they do not accept bond notes for prepaid cards or cross-border payments," a senior banker with a local financial institution, who spoke on condition of anonymity, said.
"We are also facing challenges from some customers that have requested that their USD accounts should not be diluted with the bond notes despite the currency being at par with the greenback. The challenge with this request is how banks can comply with such an instruction from a customer given that the Reserve Bank of Zimbabwe turned down our proposal to have mirror accounts for bond notes and more so it has reiterated that the notes are at par value with USD."
"…Another concern that the industry is raising is that before the introduction of the bond note, banks were made to understand that if a customer intends to carry out a cross-border payment, the bank would present the bond notes to the RBZ and the central bank would supply the US dollars. However, practically this is not happening on the ground."
The bankers have also raised concerns on automated teller machines (ATMs) which they say are configured to dispense money below the daily withdrawal limits, thereby pushing the cost to the customer.
"From an operation point of view, our machines have also been affected by bond notes. ATM operations are currently being affected by the small denominations because the cassettes can only take up to a maximum of 40 notes, which means customers have to perform several transactions resulting in build-up of queues and accelerated wear and tear of the machines, hence $5 bond should be introduced urgently," another executive working for a foreign-owned bank said.
Bond notes, according to Reserve Bank of Zimbabwe (RBZ) governor John Mangudya, are backed by a US$200 million African Export and Import Bank (Afreximbank) facility and are largely an export incentive.
Official figures show that total exports stood at US$2,83 billion against a projected target of US$3 billion while imports were at US$5,21 billion, resulting in an annual trade deficit of US$2,38 billion.
When reached for comment on challenges being faced by banks since the introduction of bond notes, central bank governor John Mangudya said this was yet to be brought to his attention.
"We are not aware of the banks that are refusing to accept bond notes to fund cross-border transactions. Cross-border transactions are effected from debiting foreign exchange accounts of the transacting party or entity. Such transactions require funding in the country's nostro accounts," Mangudya said in a written response to questions sent by the Independent.
"The bottom line is that the country needs to enhance exports and other foreign exchange receipts in order to sustain its import requirements. We need to enhance productivity across all the sectors of the economy. As previously advised, the $5 bond notes shall be released into the market in February 2017, in line with the release of the export incentive scheme pay-outs which basically conforms to the drip-feed process in sympathy with export receipts."
The Bankers Association of Zimbabwe (BAZ) said bond notes had played a role in easing the cash shortages, adding that they were not a permanent solution to problems besetting the economy.
"The introduction of bond notes has reduced further foreign currency leakages as the notes are only useful within the country. The notes have resulted in the improved availability of cash in the market and queues at banks have substantially reduced. Bond notes are however not a panacea for cash shortages as the under US$80 million worth of bond notes so far issued to the market, as published in the media by the Reserve Bank of Zimbabwe, is a minor part of the overall money in circulation in the country," BAZ president Charity Jinya said in a written response to emailed questions .
"It is important to understand that bond notes are legal tender meant for internal circulation within Zimbabwe and cannot be used to finance offshore payments. They have thus relieved banks of part of the burden of importing foreign currency notes from offshore, and these resources are being availed to critical import payments.
"The banking public is encouraged to make greater use of electronic payment channels to reduce demand for cash and banks are working round the clock to ensure that more point of sale devices are availed to businesses for the convenience of the public."
In 2013, the Supreme Court ruled in favour of China Shougang International which had sued Standard Chartered Bank for not reimbursing its deposits worth nearly US$48 000 which were raided by the RBZ during its quasi-fiscal operations at the height of the economic meltdown and hyperinflation which ended after the introduction of the multi-currency regime in 2009.
Banking officials are also raising concerns over the lack of transparency on the US$200 million Afreximbank facility after President Robert Mugabe invoked the Presidential Powers (Temporary Measures) Act to gazette Statutory Instrument 133 giving legal effect to the introduction of bond notes.
As it stands, the banking sector relies on official figures released by the apex bank on the current holdings of bond notes.
Early this month the central bank more than doubled the current holdings of bond notes to US$73 million in just less than a month as the central bank moves to ease a biting cash crunch amid concerns the apex bank could run the printing press unabated.
Banking officials further said while bond notes have relatively eased the cash crunch, failure by government to constitute an independent committee to oversee the supply of bond notes into the market could dampen market confidence.
Meanwhile, the government says it is still crafting a statutory instrument that will give legal effect to the setting up of the panel despite initial assurances by the central bank that the committee would be in the place when the bond notes were introduced.
Source - Zim Ind
