Zimbabwe’s bond notes and 2017 forecast: What’s likely to happen?

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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 replacing people’s US dollars with the so called surrogate currency. The probable scenario is that there will be a shortage of US dollars in the formal system. The fixed exchange rate will remain 1bond =1US dollar, the issue is because of shortage people will realise they can’t change their bond notes back to US dollars. Importers will still need foreign currency to import then consequently US dollars and other currencies will only be found at the black market. Traders will be forced to buy US dollars at high rate at the black market, an exchange rate will emerge. It’s not possible to maintain the fixed exchange rate regime between dollar and bond.


The Reserve Bank of Zimbabwe during Gono era used to have a fixed exchange rate but it was not possible to buy US dollars at that rate, there were no US dollars in the banks or anyone who was prepared to sell their currency at that rate. The new currency fixed exchange rate will fail because of the same reasons. The problem is the bond note is going to destroy the banking system, even if you have US dollars in your bank account you will not be able to withdraw your US dollar cash again. The bank accounts being used for bond notes and US dollars is the same implying the fixed exchange rate of 1 bond and 1 Us dollars will always remain but unavailability of US dollars will create a black market where people must use more bond notes to get US dollars. This is a probable scenario in 2017.

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