Bond notes running out

Long-suffering Zimbabweans are now being forced to accept huge sackfuls of coins from their banks and mobile money agents as bond notes vanish from the local market on the back of currency dealers who are either hoarding them for speculative purposes or taking the surrogate into the black market.

Investigations by the Daily News have revealed that the bond notes, which were injected into the monetary system by the Reserve Bank of Zimbabwe (RBZ) last November to ease the current cash shortages, have flooded regional countries, especially those sharing borders with Zimbabwe.

Large amounts of bond notes are being traded at a premium on the black market in specific regional areas in South Africa, Botswana, Zambia and Mozambique where there is heavy flow of Zimbabweans travelling in and out of the country.

What has made the bond notes attractive to dealers and traders in neighbouring countries, is their parity with the United States dollars, meaning that they can cut their losses  brought by fluctuations in their own local currencies.

The Daily News was last  night told how it had become easier to fuel cars using bond notes than the local  currencies of  the neighbouring countries, especially in towns sharing borders with Zimbabwe.

Large amounts of  US dollars had also been salted away in cash by white Zimbabwean families who were said to have opened bank accounts in these neighbouring countries before wiring the money to China.

RBZ was now said to be focusing more on importing raw materials and paying for electricity and fuel instead of buying more US dollars as there were fears that the rampant externalisation was likely to further wipe off the coveted greenback from the system.

As a result, the currency is now in short supply locally, exacerbating the cash crisis and  forcing banks to ration the dwindling stock of bond notes.

Since November, the central bank has injected $160 million in bond notes, which are supposed to be in circulation.

The bond notes are backed by a $200 million facility issued by the Cairo-based, Africa Export-Import Bank.

In spite of the high demand for the bond notes, the RBZ has resisted the temptation to print beyond the $200 million limit for fear of stoking inflation fires.

To some extent, this has worked in the apex bank's favour, as the bond notes continue to hold their own against major currencies such as the United States dollar.

The notes were meant to circulate along with a basket of other currencies such as the South African rand, the US dollar and the British pound.

These other currencies were the first to thin out because of a liquidity crisis caused by the country's failure to produce enough for export to meet its foreign currency requirement. This has been worsened by the externalisation of foreign currency, lack of balance of payments support and government's appetite to spend beyond its revenue-generating capacity.

Officials in the banking sector confirmed that the bond notes were now being found beyond the country's borders.

"I am told that bond notes are now used, or you can now find them in Mozambique on the border with Mutare, Victoria Falls on the Zambian side in Livingstone and at Park Station in South Africa. I am not sure, because when we introduced them, they were not able to be externalised," Kupukile Mlambo, the deputy RBZ governor, said recently.

"But I suspect that people know that if you are holding a bond note when you come in and buy from a retailer at a one to one rate with the United States dollar, it is good for them to hold those bond notes. We have to establish the amounts that are outside," he added.

Barclays Bank of Zimbabwe managing director George Guvamatanga recently said banks were struggling to get bond notes, which were now big business in neighbouring countries.

"It's not yet established, but there could be more bond notes at Park Station, South Africa, Botswana, Zambia and Mozambique than we have here in Zimbabwe," he told delegates attending a financial markets Indaba in Harare last month.

"At the moment, it's easier for us — at Barclays — to give United States dollars than to give bond notes," headed.

Economist John Robertson said the disappearance of the bond notes was "nothing surprising given the country already has a hoarding problem."

He said because people have lost faith in the entire financial system, they are not depositing anything into their bank accounts.

"The cash in the system does not match the demand and therefore, there is always going to be a black hole as the notes run out leaving the coins," said Robertson.

"I have always said that the bond notes were a mistake and they have now spoiled the market. Because people don't want to bank United States dollars and withdraw bond notes they are no longer making deposits and as you know, very few companies are banking their monies yet at the end of the month people are getting salaries.

"The present situation has left Real Time Gross Settlement balances being supported by the coins, which are failing to meet demand, leaving banks in the very unfortunate position of cash rationing," he said.

The economist also blamed cross-border traders saying they were fuelling bond note shortages.

"Along with the black market, the cross-border traders are using bond notes in the border towns outside the country, this has also left a deficit," he said.

Economist Persistence Gwanyanya said bond notes were being found across borders due to their parity with the US dollar.

"So, one finds it better to hold a bond note than a rand, for example, because when you hold a bond note to an extent you preserve value. Some institutions use the bond notes to buy locally at an equivalent to the United States dollar, so in a way you have actually preserved value," he said.