Financial Economics and Financial Literacy

The Gresham law in economics is the tendency of money of lower intrinsic value to circulate more freely than money of higher intrinsic and equal nominal value. In other words ‘bad money drives out good money’. The   intrinsic value   is the actual   value   of the currency (in this case, “bond notes”) based on an underlying perception of its true   value   including all aspects of the Zimbabwe’s issuing authorities and institutions, in terms of both tangible and intangible factors. This   value   may or may not be the same as the current market   value. The current scenario in Zimbabwe is an honest indicator that the intrinsic value of the bond note is not the same as its current market value. In his 93 rd birthday interview, President Robert Mugabe confessed that the people of Zimbabwe including himself have lost confidence in the country’s banking sector. He even professed, “It’s not your fault, it’s not my fault, it’s not his fault; it...

Zimbabwe’s central bank introduced an innovative currency in November 2016 known as bond notes. It is now almost three months since the issue of this new ‘currency’. The bond notes were strategically introduced in the market; with only a few notes in circulation during the early days. A lot of people seemed to be impressed by how the currency introduction had been structured. Some even celebrated the birth and acceptance rate of this surrogate currency. Unfortunately, there have been some latest developments which testify of the disaster lying ahead as far as this currency is concerned. The foreign currency shortages have worsened and some banks have even suspended the use of visa cards internationally. This include some internationally owned banks such as the Standard Chartered Bank. The present scenario in Zimbabwe affirms that we are now trading with two types of currency; the local currency and the foreign currency. It is no longer easy to get foreign currency as banks now requi...