Zimbabwe braces for the worst as bond notes introduced

Zimbabwe's cash-starved economy needs a quick fix, and the government has come up with a solution: bond notes. Due to be introduced on Monday, the new legal tender is supposed to solve the liquidity crisis. But Zimbabweans are nervous, and rightly so: who can forget what happened the last time Mugabe's regime started printing money?

After months of speculation, on Monday morning Zimbabweans finally get to see what a bond note looks like. The pseudo-currency will come in denominations of $2 and $5, and have an official value of 1:1 with the US dollar.

As the government explains it - and especially Reserve Bank Governor John Mangudya, whose brainchild this supposedly is - the bond notes will solve Zimbabwe's crippling liquidity crisis, which has seen cash begin to disappear from the economy. In theory, bond notes can be used in lieu of the US dollars on which Zimbabweans have relied since 2009, when the Zimbabwean dollar was officially abandoned following levels of hyperinflation last seen in Germany's Weimar Republic.

But those US dollars are fast running out. Part of the problem is that Zimbabwe imports most of what it consumes, so businessmen keep sending dollars outside of the country; another part is the notes that remain are so old and tatty that they are beginning to disintegrate.

A normal solution to this kind of problem would be to request a fat loan from the international community. This option is not really available to Robert Mugabe's administration, which remains an international pariah. Efforts to access funding from the World Bank and International Monetary Fund have been stymied by the regime's signal failure to implement meaningful economic reforms.

Plan B is bond notes. In isolation, the idea is not terrible. Bond coins - locally-minted coins that have replaced US cents - are already in circulation, so that goods don't have to be sold in $1 increments. They have been accepted without a fuss. So why not do the same thing, just on a larger scale?

A crucial element to the plan is that bond notes will not be forced on anyone. They will be introduced into the economy by way of a 5% "export credit": anyone who exports $100 will get a $5 bond note bonus from the government. And, according to Reserve Bank spokespeople, the bond notes will be redeemable for real US dollars at the fixed 1:1 exchange rate at any time.

So far so good. But Mugabe's government has failed to take into account one crucial factor which looks likely to derail the entire project: trust.

All currencies are based on trust. Those little pieces of paper we carry around in our wallets have almost zero intrinsic value. They are only as valuable as we believe them to be; and as valuable as government guarantees them to be.

Therein lies the problem. Few Zimbabweans have any trust in Mugabe's government, especially on economic matters. And who can blame them? When Mugabe began printing money in the mid-2000s, to fund his upcoming election campaign, he triggered perhaps the most severe economic collapse in post-colonial African history. Savings evaporated, pensions were wiped out, productive businesses went bankrupt. People starved. People died.

In Harare, earlier this month, I asked every person I transacted with whether they would accept the new bond notes: taxi drivers, street vendors, hotel owners, supermarket cashiers, minibus drivers, vegetable sellers. The response was universal, and unequivocal: NO. In this response lies the seed of a new hyperinflation crisis. Don't expect bond notes to hold their value - or, ultimately, any value.

Nor did anyone seem to believe that the bond notes would be introduced in the orderly, measured way described by the Reserve Bank. People seemed convinced that their hard-earned US dollars would be replaced without their consent. "I'm trying to withdraw my US dollars, because I think they will put bond notes in my account instead," said a security guard I spoke to outside a major bank. "I can't pay my rent with bond notes."

Most concerned are civil servants. The government is the largest employer in the country, and it has been struggling to make payments to staff all year. Will it start paying staff in bond notes? Already, reports have surfaced that soldiers are first in line to receive bond notes, and that defence force boss General Constantino Chiwenga has been visiting barracks to try to defuse potential unrest.

If Zimbabwe's government really is planning on paying its soldiers in their new pseudo-currency, it would be a sign of how desperate Mugabe has become. Any dictator knows to pay his soldiers first - in real money - or else.

Amid the economic doom and gloom, Zimbabwe's increasingly vocal - and increasingly unified - civil society senses an opportunity. Organisations like #ThisFlag and Tajamuka are planning a series of protests against the bond notes. They are convinced that bond notes are another government scam to fill the coffers of the political elite, at the expense of the country, but they also hope that the economic crisis may hasten Mugabe's departure.

Photo: Satirical bond notes printed by Zimbabwe's #ThisFlag movement

They might be right. The old man is looking weaker than ever, and the vultures are circling. And if there's one thing we know for sure, it is that none of his enemies can be bought off with bond notes.