News / National
Zimbabwe to print $400 million bond notes
02 Jul 2019 at 08:32hrs | Views
ZIMBABWE will print ZWL$400 million bond notes which it says will be drip-fed into the economy to cover the gap left after government banned the use of multi-currencies in local transactions.
This was revealed by Finance minister Mthuli Ncube and Reserve Bank of Zimbabwe (RBZ) governor John Mangudya when they appeared before the Parliamentary Portfolio Committee on Budget and Finance to speak on the impact of Statutory Instrument (SI) 142 of 2019 has had on the economy.
The Finance minister said they will not be printing a new Zimbabwe dollar as it is represented by the bond note, coins and the RTGS dollar virtual currency.
"SI142 (2019) has removed the multi-currency system (US dollar and rand) and there is a gap in terms of paper money and there is a difference between paper money and currency in that currency is the ZWL$ represented by bond notes, coins and RTGS$," Mangudya said.
"By printing the ZWL$400 million, we are saying there is need for increase in paper money to replace the gap created by non-usage of foreign currency and we are saying the ZWL$400 million will be on a drip-feed basis. And as we print new money, it will also replace the old dirty notes."
Mangudya said the ZWL$400 million bond notes will bring asset banking into normalcy, adding that Zimbabwe's money, including the US dollar was so dirty and old that whenever exported the notes were unattractive to the extent that their value was reduced to half their worth.
The RBZ governor said the interbank market was fully functional with $525 million having gone through the market by last Friday. He said there were now 55 bureaux de change in the country, which include financial institutions, with 43 being registered and operational.
Asked by Bulawayo Central MP Nicola Watson (MDC Alliance) if the printing of more bond notes will not result in financial indiscipline, spiralling inflation and economic decay similar to that of 2008 era, Ncube said his monetary policies were sound compared to 2008 when there was no fiscal and monetary discipline.
"In 2008, we had fiscal indiscipline and we are far from that as our policies and conditions are different and I do not think we are repeating the same thing. We are in a far better position than then. I would like to assure you that we are not in 2008 where we had a number of zeroes compared to now. It is about policies and we are in a different policy environment," Ncube said.
The Finance minister said the Zimdollar will reduce pressure on foreign currency and ultimately lead to a reduction in prices. Mangudya added that people only needed to be patient as a baby does not grow in one day.
But, MPs lambasted Ncube for failure to effectively communicate the introduction of the local currency to citizens, resulting in unscrupulous con-artistes flooding the rural areas, misinforming people and buying the US$ from villagers at 1:1 rate.
He said the RBZ was in the process of hiring three professionals who will look into the issue of explaining the Zimdollar introduction using local languages.
"When you deal with issues around currency, you do not call for a referendum, especially in this case where there are economic attacks. You move swiftly and stealthily and with incisiveness. The President (Emmerson Mnangagwa) hinted that there will be introduction of a domestic currency and we thought that this would prepare people. A currency is a sensitive issue and the introduction of a new currency has to be well-managed. We will explain in indigenous languages to ensure the charlatans do not extort people," Ncube said.
The Finance minister said nostro accounts will not be affected by SI 142, and the withdrawal limit will continue at $1 000 daily, adding that government, through the RBZ, has assumed all legacy debts and all RTGS$ representing legacy debts which shall be moved from commercial banks to the central bank.
"Interest rates shall be pegged at 50% per annum even though they will remain negative, given that the inflation increase will likely make the Zimbabwean dollar more attractive in the near term. This will also discourage borrowing for speculative purposes," Ncube said.
MPs expressed concern over the very high interest rates, saying they will further destroy the ailing economy and were punitive for businesses, a situation that will affect production.
The concern came after Mangudya had told the committee that to achieve economic recovery, there was need to increase production.
"We increased interest rates to 50% to deal with speculation after we had noticed that some companies were now borrowing in domestic RTGS$ to make US$ and put it in their FCA (foreign currency accounts) accounts and start all over again and so we said let us close that gap and that is why we had a sharp increase in interest rates," Mangudya said.
Ncube said the 50% interest rate will work if banks use the customer principles of good borrowing which will result in credit scoring.
But MPs argued that the 50% interest rate and the lack of electricity and fuel will further cripple production, industry and the economy.
Meanwhile, Mangudya also indicated that the interest rates will not affect mortgages as they were entered into on a contractual basis. On payments of insurance and medical aid in US dollars, Mangudya said the Insurance and Pensions Commission was looking at the issue.
Ncube promised to further adjust salaries of civil servants to cushion them from inflation and increase their purchasing power by the end of July when he announces his mid-term budget statement.
He said all transactions, except for airfares – which will be in US dollars, will be in the local currency, adding that tourists will be expected to pay for services in foreign
currency, but change money at banks and bureaux de change if they wanted to purchase goods and services in the country.
Mberengwa North MP Tafanana Zhou (Zanu-PF) then asked Ncube to explain issues surrounding the $10 million payment to South African electricity supplier Eskom, which the authority said it had not received.
Finance secretary George Guvamatanga said: "When a payment is made, there is a process that takes place in government and there is a point when a budget is released and authorised and telegraphic transfers made. When a budget is released, the Energy minister [Fortune Chasi] can say it has been paid."
Ncube admitted that the country faced a deteriorating energy situation, adding that $33 million is owed to Eskom and $37 million to Mozambique. He said the $10 million would be settled today (yesterday).
This was revealed by Finance minister Mthuli Ncube and Reserve Bank of Zimbabwe (RBZ) governor John Mangudya when they appeared before the Parliamentary Portfolio Committee on Budget and Finance to speak on the impact of Statutory Instrument (SI) 142 of 2019 has had on the economy.
The Finance minister said they will not be printing a new Zimbabwe dollar as it is represented by the bond note, coins and the RTGS dollar virtual currency.
"SI142 (2019) has removed the multi-currency system (US dollar and rand) and there is a gap in terms of paper money and there is a difference between paper money and currency in that currency is the ZWL$ represented by bond notes, coins and RTGS$," Mangudya said.
"By printing the ZWL$400 million, we are saying there is need for increase in paper money to replace the gap created by non-usage of foreign currency and we are saying the ZWL$400 million will be on a drip-feed basis. And as we print new money, it will also replace the old dirty notes."
Mangudya said the ZWL$400 million bond notes will bring asset banking into normalcy, adding that Zimbabwe's money, including the US dollar was so dirty and old that whenever exported the notes were unattractive to the extent that their value was reduced to half their worth.
The RBZ governor said the interbank market was fully functional with $525 million having gone through the market by last Friday. He said there were now 55 bureaux de change in the country, which include financial institutions, with 43 being registered and operational.
Asked by Bulawayo Central MP Nicola Watson (MDC Alliance) if the printing of more bond notes will not result in financial indiscipline, spiralling inflation and economic decay similar to that of 2008 era, Ncube said his monetary policies were sound compared to 2008 when there was no fiscal and monetary discipline.
"In 2008, we had fiscal indiscipline and we are far from that as our policies and conditions are different and I do not think we are repeating the same thing. We are in a far better position than then. I would like to assure you that we are not in 2008 where we had a number of zeroes compared to now. It is about policies and we are in a different policy environment," Ncube said.
The Finance minister said the Zimdollar will reduce pressure on foreign currency and ultimately lead to a reduction in prices. Mangudya added that people only needed to be patient as a baby does not grow in one day.
But, MPs lambasted Ncube for failure to effectively communicate the introduction of the local currency to citizens, resulting in unscrupulous con-artistes flooding the rural areas, misinforming people and buying the US$ from villagers at 1:1 rate.
He said the RBZ was in the process of hiring three professionals who will look into the issue of explaining the Zimdollar introduction using local languages.
"When you deal with issues around currency, you do not call for a referendum, especially in this case where there are economic attacks. You move swiftly and stealthily and with incisiveness. The President (Emmerson Mnangagwa) hinted that there will be introduction of a domestic currency and we thought that this would prepare people. A currency is a sensitive issue and the introduction of a new currency has to be well-managed. We will explain in indigenous languages to ensure the charlatans do not extort people," Ncube said.
The Finance minister said nostro accounts will not be affected by SI 142, and the withdrawal limit will continue at $1 000 daily, adding that government, through the RBZ, has assumed all legacy debts and all RTGS$ representing legacy debts which shall be moved from commercial banks to the central bank.
"Interest rates shall be pegged at 50% per annum even though they will remain negative, given that the inflation increase will likely make the Zimbabwean dollar more attractive in the near term. This will also discourage borrowing for speculative purposes," Ncube said.
MPs expressed concern over the very high interest rates, saying they will further destroy the ailing economy and were punitive for businesses, a situation that will affect production.
The concern came after Mangudya had told the committee that to achieve economic recovery, there was need to increase production.
"We increased interest rates to 50% to deal with speculation after we had noticed that some companies were now borrowing in domestic RTGS$ to make US$ and put it in their FCA (foreign currency accounts) accounts and start all over again and so we said let us close that gap and that is why we had a sharp increase in interest rates," Mangudya said.
Ncube said the 50% interest rate will work if banks use the customer principles of good borrowing which will result in credit scoring.
But MPs argued that the 50% interest rate and the lack of electricity and fuel will further cripple production, industry and the economy.
Meanwhile, Mangudya also indicated that the interest rates will not affect mortgages as they were entered into on a contractual basis. On payments of insurance and medical aid in US dollars, Mangudya said the Insurance and Pensions Commission was looking at the issue.
Ncube promised to further adjust salaries of civil servants to cushion them from inflation and increase their purchasing power by the end of July when he announces his mid-term budget statement.
He said all transactions, except for airfares – which will be in US dollars, will be in the local currency, adding that tourists will be expected to pay for services in foreign
currency, but change money at banks and bureaux de change if they wanted to purchase goods and services in the country.
Mberengwa North MP Tafanana Zhou (Zanu-PF) then asked Ncube to explain issues surrounding the $10 million payment to South African electricity supplier Eskom, which the authority said it had not received.
Finance secretary George Guvamatanga said: "When a payment is made, there is a process that takes place in government and there is a point when a budget is released and authorised and telegraphic transfers made. When a budget is released, the Energy minister [Fortune Chasi] can say it has been paid."
Ncube admitted that the country faced a deteriorating energy situation, adding that $33 million is owed to Eskom and $37 million to Mozambique. He said the $10 million would be settled today (yesterday).
Source - newsday
