Financial Economics and Financial Literacy

The only reason the bond dollar has any value at the present is that it is issued within the context and background of a society full of people who have been assured by the respective authorities that bond notes and US dollars are equivalent. The society has agreed to treat it as though it has value (at least for now). Without that faith, the bond note is as useful as small pieces of paper generally are. It is a false sense of security that the bond note is backed by facility at some bank elsewhere. US dollars, as well as the euro, yen, and every other major currency, is backed directly by the stability of the society that issues it. The bond note following the same should be backed by the Zimbabwean society who issues it. The bond notes in a wallet with someone in Zimbabwe have value because, everybody thinks they have value. Bond notes will not be and will never be redeemable to any currency or commodity such as gold. If bond notes will not be redeemable to US dollars in th

The recent introduction of a new currency by Zimbabwe’s central bank the Reserve Bank of Zimbabwe (RBZ) result in a process called reverse dollarization. Baliño, Bennett, and Borensztein (1999) note that reversing dollarization may be difficult because changes in practices regarding the settlement of transactions may be a slow process that depends on institutional changes and takes place only when there are significant benefits to be gained by switching currencies. The process will not be easy as people’s preferred choice of holding and storing value remains United States dollars and not the surrogate currency. There are no significant benefits to be gained by switching from foreign currency to bond notes. Forced dedollarization has had limited success, while dollarization may have fallen in the short run and was sustained in some cases, countries that tried to force dedollarization experienced financial disintermediation and capital flight (Menkulasi, Erasmus, & Leichter, 2009)

There is a school of thought which say you need to create demand so that supply can increase. The Keynesian school of thought is precisely based on the assumption that demand create its own supply. The bond notes will create demand, prior demand was depressed because of the liquidity crises. There were a few buyers but now as more people get bond notes demand will increase. The introduction of bond notes will increase