Financial Economics and Financial Literacy

The Reserve Bank of Zimbabwe will continue to print bond notes, the appetite to print more will remain as long as cash shortages persist. The continued printing of bond notes will result in increased supply of bond notes and the US dollar will continue to get scarce. Mainly this will happen because of Gresham’s law. In   economics ,   Gresham's law  is a monetary principle stating that "bad money drives out good". For example, if there are two forms of commodity money in circulation, which are accepted by   law  as having similar face value, the more valuable commodity will disappear from circulation. Foreign currency is used to import, at present in Zimbabwe we have a shortage of foreign currency already. The supply of US dollars will continue falling since we have more imports than exports. Logically US dollars will continue leaving Zimbabwe whilst bond remains, since it is not in used international transactions. The iron of bond notes is that its repl...

Bank deposits to GDP One key indicator of financial sector development is ratio of bank deposits to GDP (BD/GDP). This is the total value of demand, time and saving deposits at domestic deposit money banks as a share of GDP. This measure determines the extent of banking in an economy and confidence in the financial sector. The introduction of the bond note will result in falling of BD/GDP at least by 30%. The ratio of all checking, savings and time deposits in banks and to economic activity and is a stock indicator of deposit resources available to the financial sector for its lending activities (Beck,  Demirgüç-Kunt and Levine 2009). Banks need to attract deposits before they can lend. In Zimbabwe the economic impact of bond notes is that it is going to reduce the amount available for lending in the banking sector to the private sector. The attraction of deposits and savings in Zimbabwe or any country can only be a result high confidence in the banking sectors. Currency ou...