Patrick Chinamasa Breaks Ranks - Bond Notes to Stay Until Further Notice

Contrary to the weekly Sunday Mail report that Bond Notes will be phased out, depositors will be stuck with bond notes for the foreseeable future until economic fundamentals improve, Finance Minister Patrick Chinamasa has said.

Zimbabwe introduced bond notes in November 2016 in a desperate bid to ease the shortage of bank notes, but the $500 million worth of currency has failed to solve the crisis.

The surrogate currency, which was initially pegged at 1:1 with the United States dollar, has since dropped close to 20 percent in value against the greenback, sparking debate on the need to use other currencies such as the South African Rand.

Chinamasa, however, dismissed rumours that the controversial bond notes would be phased out under the new political dispensation.

Patrick Chinamasa Breaks Ranks - Bond Notes to Stay Until Further Notice

“Bond notes will stay for as long as and until we have our own local currency,” he said, while responding to questions during a breakfast meeting on the theme Zimbabwe’s New Economic Trajectory: Renaissance and Growth organised by the Centre for Risk Analytics and Insurance Research.

He added that even the local currency will only be introduced when macro-economic fundamentals such as having reserves equal to one year’s import cover, a sustainable budget and “right” consumer and business confidence are addressed.

Zimbabwe adopted a basket of currencies, dominated by the United States dollar and South African rand since 2009, after the local Zimbabwe dollar was forced out of circulation by a 500 billion percent hyperinflation in 2008 that had rendered the local currency worthless.

The Treasury boss allayed fears of a possible back-door return of the local currency saying foreign currencies would remain in use until the southern African nation’s moribund economy picks up.

The Confederation of Zimbabwe Industries (CZI) last year implored government to put a cap on the value of Real Time Gross Settlement (RTGS) by printing more bond notes as a way of building confidence in the economy.

“What we are recommending specifically is that the cap on bond is replaced by a cap on RTGS plus bond and that enough bond is then released to meet the cash requirements in the economy. This solves the problem of the shortage of cash as a medium of exchange in the economy,” the country’s largest industry body said.

“As people withdraw bond from the banks, this will reduce the RTGS balances, further tightening monetary policy as when the bond is in someone’s pocket the money multiplier impact is not felt. In other words, cash money is much less inflationary than electronic money,” CZI has advised. - Financial Gazette