The effects of bond notes on the multiple currency monetary system in Zimbabwe

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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 require that one applies first and give details of their expenditure outside the country. The expenditure will only be approved if it is within the priority list issued by the Reserve Bank of Zimbabwe to the banks. The coming of the bond notes have mainly relegated foreign currency to be hard cash whilst bank balances are now merely book balances. If you have foreign currency in your bank account it is local currency until your application for foreign currency is approved or you get cash for that amount. It is an interesting phenomenon where people have US dollar bank balances which do not translate to foreign currency. The restriction of access to foreign currency is likely to get severe in the coming months.



Ecocash, a mobile money system has also capped withdrawal limits at US$400 per month. There are no clear indications at the moment to anticipate that the US dollar cash supplies are going to improve any time soon. The introduction of bond notes was focused on the notion that if there is a currency that circulates in Zimbabwe and cannot be flighted out of the country, foreign currency will be freed for other critical uses. The effect of bond notes so far has been to the contrary. Rather, now one needs hard cash to be guaranteed that they have foreign currency. If one for instance has US$10 000 in a Zimbabwean bank which is not accessible and they are unable to use it internationally, it shows that there is a serious disaster. In other words, that amount is only as good as Zimbabwean dollar with even more restrictions on expenditure locally due to limited access. The bond note concept is the first of its kind, only goods have been bonded in warehouses before; not money. The issue of bond securities has been merely either coupon paying or zero coupon bonds. Zimbabwe’s bond notes are nowhere nearer the well-known financial securities called bonds.

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