22 things you need to know about Bond notes | #Bondnotes

By Reserve Bank Of Zimbabwe

 

1. What are Bond notes and are they not a currency?

Bond notes are a domestic financial instrument which is useful in guarding against externalization of the US dollar. Financial instruments are monetary contracts between parties, which can be created, traded, modified and settled.
Financial Instruments can be:

  1. cash in which case, they are a currency,
  2. evidence of an ownership interest in an entity – share, or
  3. a contractual right to receive or deliver cash (financial instrument) – bond

Bond notes are zero coupon, tax-exempt financial instruments, which are issued par

with the US Dollar that is 1:1.

2. Are Bond notes not a surrogate Zimbabwe dollar, and won’t there be a conversion rate of the Bond note against the US dollar?

Bond notes are not a surrogate Zimbabwe dollar for they are not currency but a financial instrument, issued at par with the US Dollar. Bond notes will operate in the same manner that the Bond coins have been operating. Bond notes will exchange at the same value as the US Dollar. When the Bank introduced the Bond coins for the purpose of change in 2014, many have been sceptical that they will not maintain their value, which they have done.

 

3. What guarantee do we have that the Government will not direct the RBZ to print Bond notes which are in excess of the US$200 million facility?

Bond notes derive their value from the Nostro Stabilisation and Export Finance Facility and this Facility caps the amount of Bond notes to be issued at the facility amount of US$200 million. The Bank cannot issue Bond notes in excess of that amount. The Bank cannot issue Bond notes when there are no exports. The partners involved are reputable institutions who have a name and international rating to protect. The Bank is also going to put in place an independent body to monitor the entire printing process.

4. When are Bond notes coming into circulation?

Bond notes are expected to start circulating in November 2016.

5. In which country are the Bond Notes being printed?

Bond notes will be printed outside Zimbabwe on an agreement that not only safeguards against abuse of the US$200 million facility but also the identity of the printers.

6. Why can’t Bond notes be used in other countries?

Bond notes are also an anti-money laundering tool that is useful in guarding against externalization of the US dollar. Just like the currencies of the Common Monetary Area which include South Africa, Namibia, Swaziland and Lesotho, whose currencies are pegged 1:1 with the Rand, but are not legal tender outside their borders, but the Rand is in all member countries.

7. Why is the country introducing Bond notes instead of injecting the US$200 million facility directly into the economy?

The Zimbabwean economy has continued to suffer from foreign exchange malpractices since the adoption of the multi-currency system in 2009. The foreign exchange malpractices include externalisation, capital flight, hoarding of US Dollar cash and looting by unscrupulous businesses and individuals. Bringing in Bond Notes would mitigate against such malpractices and other vices that have become entrenched in the economy. Bond notes would, therefore, preserve the value of the facility.

 

8. For how long will the Export Incentive Scheme be in Place?

This Export Incentive Scheme would be in place as long as the maximum limit of the Facility amount of US$200 million is not reached. In this respect, exporters are encouraged to step up their businesses and benefit from the scheme before it is exhausted. Each Bond note in the economy would be evidence of exports within the economy and would represent a small proportion of up to 5% of the foreign exchange earned by the country.

9. What is the life span of Bond Notes?

Bond Notes will remain in existence as long as the facility guaranteeing their existence is in place. They will also remain in circulation as long as the fundamentals required to issue a local currency are not in place.

10. What has caused the postponement of the introduction of the Bondnotes into the market from October to November?

The delay has been necessitated by the need to ensure that the public is made aware of the features of Bond notes before they come into circulation. There are other logistics related to the distribution of the Bond notes to banks according to exports realised so far as well as the banks’ distributions of the same to different parts of the country.

11. WhathaspromptedtheBanktointroduceonly$2and$5Bondnotes,leaving out the larger denominations?

The Bank has heard and taken note of the public’s concerns, fear, anxiety and scepticism of bond notes which all boils down to the general lack of trust and confidence within the economy. The Bank has decided to address these concerns by planning to introduce smaller denominations of bond notes of $2 and $5 which will in turn act as change.

12. Why is the Bank not bringing back the Zimbabwe dollar and are Bonnets not one way of bringing back the Zimbabwe dollar through the back door?

It is critical to emphasise that the macroeconomic fundamentals or conditions for the return of the local currency are not yet right to do so. The introduction of bond notes does not mark the return of the Zimbabwe dollar through the back door.

 

Key economic fundamentals or conditions for the return of the local currency are as follows:

a) Minimum foreign exchange reserves equivalent to one (1) year of import cover; b) Balanced and sustainable government budget;
c) Sustainable interest rates;
d) High consumer and business confidence;

e) Sustainable level of inflation; and f) Healthy job market.

13. Whyarefarmers,whoarenotintotobaccofarmingbeingexcludedfromthe Export Incentive scheme?

The Export Incentive Scheme is targeted at all foreign currency earners who include:-

  1. Tobacco Growers
  2. Diamond and Gold Producers
  3. Exporters of goods (Manufacturing, Mining, Agriculture, Horticulture)
  4. Exporters of Services (Tourism, Transport, Hunting, Posts andtelecommunications).

14. Is my US dollar account going to be converted to a Bond Note account?

There will be no conversion of US dollar accounts into Bond note accounts, Bond notes will be deposited into the existing US dollar accounts.

15. How will the Bond notes reflect in my account which will be having US dollars?

Bond notes which are at par (1:1) with the US dollar will be deposited into one’s US Dollar account where one can transact electronically through RTGS and other means, make foreign payments for imports or use their debit cards for payments. Bond notes will reflect as US Dollars.

16. Are we going to be paid salaries in Bond notes?

Bond Notes will work the same way as Bond Coins, and they will not be forced on anyone who do not want them.

 

17. Is the Reserve Bank realistic in saying that Bond notes will avert externalization?

Bond notes are local financial instruments which can only transact in Zimbabwe hence cannot be externalised. The Bank has also put in place some measures to deal with externalisation of cash, which includes, limits on the amount of cash which can be exported by a person. The relevant security arms of Government are on high alert.

18. If the Bond notes are for exporters how will the ordinary person get them?

Whilst Bond notes are earned as an export bonus by exporters, they will be available for use by both exporters and non-exports, corporates and individuals through normal banking and daily transactional activities.

19. WiththecashcrisisandtheintroductionofBondnoteswhatguaranteedowe have that Commercial banks will give us other currencies which are in the basket, particularly when we are traveling out of the country?

Bond Notes are redeemable for any other currency within the multicurrency system. In this regard, one can redeem the Bond notes for USD, ZAR, Euro, Yen, Australian dollar, Yuan, Pula and Rupee at any bank or any Easylink Branch of Homelink. This effectively means the public has a choice of either keeping or transacting in the Bond notes or converting them to other currencies when the need arises.

20. What effect will Bond Notes have on investor confidence since they are only being used in the country?

The Bank would like to reassure the public that Bond notes which would be introduced to support exporters are a necessary export incentive/bonus scheme aimed at encouraging domestic production for export, especially given the external shocks of low international commodity prices and the strong US Dollar. The economy has to generate liquidity in this uncompetitive environment while at the same time ensuring that the incentive is preserved from externalisation by unscrupulous businesses.

The multi-currency system is here to stay. It needs to be supported by more exports of goods and services.

 

21. Where to Redeem Bond Notes

Bond Notes are redeemable for any other currency within the multicurrency system. In this regard, one can redeem the Bond notes for USD, ZAR, Euro, Yen, and Australian dollar, Yuan, Pula and Rupee at any bank or any Easylink Branch of Homelink.

22. Will any questions be asked upon redemption of Bond Notes?

The process will be done on a no questions asked basis, however, in suspicious cases, the banks should report same to the Central Bank in terms of Anti Money Laundering requirements.

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