The Issue of Bond Notes
On the 4th of May 2016, the Reserve Bank announced that they were going to start printing and issuing a new local currency that they would call “Bond Notes”. Clearly they were working on the new notes being an extension of the “Bond Coins” that had been in circulation for some time and were now accepted currency at par with the US dollars in circulation.
Reaction was swift – the IMF concluded that the liquidity crisis was much worse than was being stated by the authorities and they did not fully understand the reasons why this was the case. The general public reacted with horror and it was widely predicted that the new currency would be rejected.
Cash is just a means of exchange and its value is determined by the monetary policies of the issuing authority and market forces. We use the US dollar and this has a stable value against other currencies and in fact, tends to be on the strong side of the monetary fence. It is printed by the US Central Bank and is made available for exchange purposes and as a store of wealth in all parts of the World. Today it is used in over 98 per cent of all local transactions in Zimbabwe and supplies 70 per cent of all the cash in global markets.
I always supported the issue of bond coins – we needed them to help with local transactions and it was not viable to import US coinage with the same face value. I also felt that their total value at about $35 million would make little or no difference. Because they would be readily convertible into real US dollars at par, their value would be fixed by their larger brothers in the market. This proved to be the case and after a brief period of adjustment they were adopted by the markets as a means of exchange.
Bond notes are another matter, the consequential investigations of the IMF into the background to the decision has revealed that both the Ministry of Finance and the Reserve Bank have been delinquent in their administration of our fiscal and monetary affairs. This delinquency was so serious, that the Fund suspended further progress under the Staff Monitored Program and tightened up their monitoring of the situation in Zimbabwe.