[ 2016-10-24 ]

New Zimbabwe notes stir memory of 500,000,000,000% inflation
The country will soon introduce so-called bond
notes, pegged to parity with the U.S. dollar and
beginning with denominations worth from $2 to $5,
central bank Governor John Mangudya said on
Wednesday.

It’s an attempt to complement the range of
foreign currencies used in the beleaguered economy
since 2009, which have been in short supply
following a collapse in exports.

James Sakupwanya, who sells items such as maize
meal, tinned food and blankets from his shop in
Mutare, southeast of Harare, isn’t buying it.
Sakupwanya and Zimbabweans like him see the notes
as a step back to the hated Zimbabwe dollar, which
by the time of its demise was valued at 150
trillion to the greenback, according to the
central bank.

“We will reject it,” Sakupwanya said. “They
can legislate as much as they want, but it is
their currency which they want to impose on us to
manage the crisis they created.”

Liquidity Crisis
An earlier announcement of plans to introduce the
currency sparked riots in Harare even after the
government said the notes, which will be legal
tender only in Zimbabwe, will be backed by a $200
million loan from a multilateral lender. Banks
have limited cash withdrawals to prevent hoarding
of dollars, used in 95 percent of all transactions
in the country, while some shops reported
they’re running short of essential goods.

Zimbabwe has been gripped by a liquidity crisis
that’s forced the government to pay its workers
late in recent months. Finance Minister Patrick
Chinamasa said on Sept. 9 that the state may cut
25,000 civil service jobs as it struggles to meet
pay obligations. Zimbabwe owes lenders including
the International Monetary Fund, World Bank and
Africa Development Bank about $9 billion,
according to the finance ministry, and missed a
$1.8 billion payment in June.

In addition to the U.S. dollar, Zimbabwe also uses
eight other currencies, including the South
African rand, euro, British pound and Chinese
yuan. Getting Zimbabweans to adopt the bond notes
will be difficult, given fresh memories of a
worthless currency, Mangudya and the chairwoman of
the Zimbabwe Revenue Authority, Willia Bonyongwe,
have said.

“If people don’t want bond notes, they don’t
have to accept them,” Mangudya told business
leaders early October, while Bonyongwe said in an
e-mailed statement that the expected arrival of
bond notes had caused “uncertainty in the
economy” and led to people hoarding dollars.

Export Slump
The bond notes won’t address structural
challenges facing the economy, said Naome
Chakanya, an economist with the Labour and
Economic Research Institute, a Harare-based think
tank. The economy collapsed in the wake of a
campaign to seize white-owned commercial farms and
hand them over to black subsistence farmers,
triggering a near decade-long recession as exports
from tobacco to roses slumped.

About 3 million of Zimbabwe’s 13 million people
still live abroad after fleeing the economic
crisis, according to the United Nations.
Employment in the manufacturing sector has dropped
to 85,000 from 200,000 in 2009, according to the
Confederation of Zimbabwe Industries, while 4,600
companies have closed down in the past three
years, according to central bank data.

“Some are going to accept it, some are going to
reject it, others will be frog-marched to accept
since the cash crisis is worsening,” Chakanya
said. “There is a high probability of emergence
of a black market for U.S. dollars, thus creating
more problems for the economy” including
inflation.

Bearer Checks
Adding to the suspicion is uncertainty about who
exactly will lend Zimbabwe the money to back the
bond notes. Gift Simwaka, the African
Export-Import Bank’s regional manager for
southern Africa, declined to confirm whether the
notes will be underwritten by the multi-lateral
lender.

Without a hard-cash foundation, the notes will be
no different to so-called bearer checks, a
temporary currency with denominations of as much
as 100 trillion Zimbabwean dollars introduced at
the height of hyperinflation in 2008, Sakupwanya
said.

“They are forgetting that in 2008 we rejected
their bearer checks, so what stops us from
rejecting their bond notes,” he said.

Source - Joyfm

... go Back