By Daniel Chigundu
Reserve Bank of Zimbabwe (RBZ) Governor John Mangudya has said the Bond notes which will come into circulation by end of October have a self control mechanism that will prevent them from being over-printed.
Most economic commentators while have okayed the introduction of Bond notes as export incentive are skeptical that the financially challenged government’s will be disciplined enough to stick to the guaranteed figure of US$200m.
Presenting his 2016 Mid-term Monetary Policy statement, Mangudya said the Bond notes will be introduced gradually in line with the amount of exports and people have nothing to fear.
“The issuance of Bond notes has a self-control mechanism in that when there are no exports there will be no bond notes. The bond notes will be gradually released into the economy in sympathy with export receipts through normal banking channels up to a maximum ceiling of the facility of US$200 million.
“The ceiling would be attained when total exports are around US$6billion. At the rate at which the country is exporting and based on statistics, we anticipate that bond notes equivalent to around US$75 million will be in the market by the end of December 2016.
“The bond notes which will start to circulate by end of October 2016 will be at par with the US$(i.e. one to one) and will be used and treated in the same manner as bond coins,” he said.
The governor said the bond notes are intended to preserve the offshore US$200 million counter-cyclical facility that has been arranged to support the export bonus scheme from externalization or capital flight which has continued to negatively affect the economy since dollarization in 2009.
Mangudya said while there is really nothing wrong with bond notes except the unwarranted public fear and misconceptions, the central bank is working on addressing the alleged fears.
“The bank has heard and taken note of the public’s concerns, fear, anxiety and skepticism of bond notes which boils down to the general lack of trust and confidence within the economy.
“The bank is addressing the concerns by planning to introduce smaller denominations of bond notes of $2 and $5. In addition the bank has proposed for the setting up of an independent board to have an oversight role on the issuance of Bond notes in the economy.
“Doing nothing to incentivize exporters of goods and services, whilst at the same time desiring to maintain the multi-currency exchange system is not only contradictory but also imprudent.
“It is critical to emphasis that the introduction of Bond notes does not mark the return of the Zimbabwe dollar through the back door. The macroeconomic fundamentals or conditions for the return of the local currency are not yet right to do so,” Mangudya said.