Opinion / Columnist
Bond notes dilemma
23 Nov 2016 at 14:41hrs | Views
Next week which is the end of November, bond notes will start circulating in the financial system as legal tender provided Parliament passes the legislation this week. Bond notes were conceived as a panacea to the cash shortages caused by the run down on USD deposits and capital flight triggered by indigenization threats of Feb 2016. The policy clash between Finance Minister Patrick Chinamasa and Indigenization Minister on the interpretation of the indigenization law caused panic on the market. Depositors withdrew their money, kept it under the pillow or in vaults. The majority externalized it. USD demand outstripped supply. In short, the usd shortage was caused by speculative tendencies fed by lack of confidence. That is the real mischief.
Bond notes were thought to be the anti-dote of externalization since they would be only used in Zimbabwe. Now there is the rub.
Because bond notes will be domestic legal tender, importers have already scaled down or stopped imports. There are two reasons for that. Firstly, it does not make economic sense to import in foreign currency and sell in bond notes. People are not convinced that the bond note will be the same as the usd. Its a confidence issue. Secondly, It also does not make economic sense. To the extent that the market is reading too much into rbz bond publicity campaigns as hoodwinking and deceptive. The people are saying since when has money been dished for free (export incentives). The market is saying there is no such thing like free lunch. Its again a confidence issue.
The market is rebellious. It is all about a national anti-establishment sentiment. The market is not differentiating bond notes from the government itself. From the high budget deficit of $1 billion per annum, from their daily hardships, the collapse of healthcare, and governance. The Reserve Bank is caught in a crossfire. The economy is in the jaws of politics. Period. The RBZ is doing its job but alas, the environment is totally anti-establishment
Under normal circumstances with correct macro-fundamentals, Zimbabwe actually needs its own domestic currency with a market determined exchange rate not a manual or handmade exchange rate like we are seeing with bond notes.
Now the country is again in the throes of worrisome shortages. Fuel queues are starting to form at service stations. Some imported commodities are disappearing from the shelves. Nostro accounts are getting depleted. Electricity cuts are coming back.
Economics is a double entry discipline. Where there is a debit there is a credit. Where there is demand, there is supply. Where there are importers there are exporters. Exporters have been given a 5% incentive in bond notes. Where is the incentive for importers??.
Its about confidence and confidence and confidence.
The Reserve Bank is being used as a pawn in this political game.
Bond notes were thought to be the anti-dote of externalization since they would be only used in Zimbabwe. Now there is the rub.
Because bond notes will be domestic legal tender, importers have already scaled down or stopped imports. There are two reasons for that. Firstly, it does not make economic sense to import in foreign currency and sell in bond notes. People are not convinced that the bond note will be the same as the usd. Its a confidence issue. Secondly, It also does not make economic sense. To the extent that the market is reading too much into rbz bond publicity campaigns as hoodwinking and deceptive. The people are saying since when has money been dished for free (export incentives). The market is saying there is no such thing like free lunch. Its again a confidence issue.
The market is rebellious. It is all about a national anti-establishment sentiment. The market is not differentiating bond notes from the government itself. From the high budget deficit of $1 billion per annum, from their daily hardships, the collapse of healthcare, and governance. The Reserve Bank is caught in a crossfire. The economy is in the jaws of politics. Period. The RBZ is doing its job but alas, the environment is totally anti-establishment
Under normal circumstances with correct macro-fundamentals, Zimbabwe actually needs its own domestic currency with a market determined exchange rate not a manual or handmade exchange rate like we are seeing with bond notes.
Now the country is again in the throes of worrisome shortages. Fuel queues are starting to form at service stations. Some imported commodities are disappearing from the shelves. Nostro accounts are getting depleted. Electricity cuts are coming back.
Economics is a double entry discipline. Where there is a debit there is a credit. Where there is demand, there is supply. Where there are importers there are exporters. Exporters have been given a 5% incentive in bond notes. Where is the incentive for importers??.
Its about confidence and confidence and confidence.
The Reserve Bank is being used as a pawn in this political game.
Source - Online
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