We'll not flood market with bond notes, says Mangudya

The Reserve Bank of Zimbabwe (RBZ) says it will not be negligent and flood the market with bond notes, due to be launched before the end of this month, to avoid fuelling inflation.The impending launch of the bond notes, which will be legal tender and have a double pronged aim of encouraging exports and addressing cash shortages the country is experiencing, has caused debate.

With Zimbabwe using a basket of multi-currencies, primarily the United States dollar, as a medium of exchange, the country has for the better part of this year, faced banknote shortages as a result of a combination of hoarding and externalisation.

And with exports being the main source through which the country earns its foreign currency, the RBZ has said it will give an incentive of up to 5 percent of the value of export earnings to companies that sale their goods outside Zimbabwe.

The incentive will be paid in bond notes, which are backed by a $200 million facility, and will trade at par with the greenback. Bond notes will only be useful inside Zimbabwe.

Authorities view the bond notes as a panacea to cash hoarding and externalisation as they will only circulate within the country, unlike US dollar banknotes which can be used everywhere.

But some argue their introduction will lead to total disappearance from the market of US banknotes which have been in use in the economy for the past six years.

Black market dealers are also said to be eyeing to make a killing through selling the bond notes, which are denominated in US dollars, at a yet to be established rate against US banknotes even as authorities insist the rate will be one as to one with the greenback.

Central bank governor, Dr John Mangudya, however, said the bond notes would be "drip-fed" into the market.

"We are not just going to flood the market with bond notes. We are going to be drip-feeding to ensure that we do not cause inflation," he told business executives on Wednesday.

About $75 million in bond notes is expected to be in circulation by the end of this year.

Dr Mangudya said it was impossible to leave the prevailing situation as it was as critics of the bond notes wanted.

"We are not careless. We are there to make sure the economy stabilises and we need to support industry and consumers."

Banknote shortage were caused by banks importing fewer notes following a decline in export earnings and an increase in import bills, largely a result of the drought and higher food imports. They have persisted since the beginning of the year.

Having endured the banknote shortages, some consumers are eagerly awaiting introduction of the bond notes in the hope that they will do away with bank queues. The RBZ has said the new notes will be in circulation by the end of this month.