RBZ bond notes board delays raise eyebrows

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya's failure to appoint an independent board to monitor the bond notes in circulation, will further erode public confidence in the financial system, analysts have said.

In the run-up to the introduction of bond notes, which were first announced in May 2016, Mangudya told Zimbabweans that he would appoint an independent board to monitor the printing of the surrogate currency.

But seven months after the bond notes hit the market in November 2016; Mangudya is yet to appoint the board.

This has raised fears that the government may start running its printing press again, churning out the bond notes to fund a number of its commitments and buy foreign currency from the market for its external obligations.

Bankers and economic analysts who spoke to Standardbusiness last week said delays in the appointment of the board will further erode public confidence in the fragile banking sector.

"[The] banking sector is suffering from a serious lack of confidence and the failure by the governor to appoint the board leaves many wondering if there is something to hide.

"The board is very necessary and it must be the one giving updates on the bonds in circulation," an economic analyst, Reginald Shoko said.

"The current situation is not conducive for confidence building for the banking sector.

"As we stand, there are no checks and balances or an independent audit to verify the claims by central bank that it has limited its printing to the $200 million."

Shoko said an ordinary man on the street will testify that there had been a dramatic increase in bond coins in circulation in the market compared to six to eight months ago.

John Robertson, an economic analyst, said in the days before RBZ existed, the country had a currency board that controlled the foreign currency that was in circulation.

The population's needs were carefully calculated so that the available cash would always be just enough and the controls over loans to government as well as the private sector helped to keep inflation under control, he said.

However, Robertson said such a board may not be necessary in Zimbabwe.

"We have been assured that the terms of this agreement (with the Afrexim Bank) will not be varied," he said.

"Even without the bond notes, payments and receipts for goods sold and work done throughout Zimbabwe are being handled well by RTGS (Real Time Gross Settlement) and other bank transfer mechanisms.

"It can be argued that the bond notes were never necessary in the first place.

"So a currency board is not necessary. But we do need a board that will work to eliminate all the policies that are discouraging investment.

"If the country can rebuild its manufacturing abilities and reduce its dependence on imported basic goods, it will soon recover its ability to generate a local currency worthy of respect."

A banker who preferred anonymity said even though the board was needed, it had been overtaken by events.

"I am not sure whether the proposed board has not been overtaken by events," he said. "More than $150 million worth of bond notes have been printed and if we are to stick to the limit, it means only $50 million will have to be printed in line with the $200 million Afreximbank facility," he said.

"Initially, I think it was to calm fears for the market.

"But as time progressed it became apparent that the fears were overtaken by events.

"Commendably though, the RBZ has so far managed to keep the bond notes in limited supply.

"However, the cash situation still remains dire, meaning the measures so far have not succeeded in addressing cash challenges.

"If anything, the lack of confidence in the banking sector is causing depositors to circumvent the formal banking channels whenever they can.

"This has also resulted in increased the informalisation of the economy".

Presently, the banker said, the greatest risk the economy was facing was the financing of the government budget deficit through the RBZ.

This financing of the budget represents electronic money printing, he said.

"The danger is that it worsens the cash shortages. The International Monetary Fund also gave similar advice when it urged government to restrain from its expenditures and limit monetisation of the deficit," he s said.

Mangudya did not respond to questions sent to him via email two weeks ago. He also did not answer his mobile phone in the past two weeks.

However, in an interview with our sister paper, the Zimbabwe Independent in February this year, Mangudya said an independent board was required to ensure integrity and restoration of confidence within the financial system.

"The independent board is required to ensure integrity and restore confidence within the financial system," he was quoted saying.

"As you may be aware, the appointment of the independent board was temporarily delayed by the need to ensure that the Bill to amend the Reserve Bank Act is passed by Parliament.

"This was done and the Bill now awaits presidential assent. Once the Bill is signed then the independent board will immediately be put in place."

Shoko said the board must also look into the release of Treasury Bills which the central bank has somehow started using as shock absorber, dishing them each time there is a financial requirement.

The banker said excessive issuance was not good because it was another form of government borrowing.

"The danger is that it causes crowding out of the private sector," he said.

"Basically, government consumes more financial resources at the expense of the private sector.

"The private sector is the engine for growth and if it is starved of the much-needed working capital then economic growth will suffer."