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Zimbabwe Issuing a new Currency known as Bond Notes that are officially equal to US Dollar

The Reserve Bank of Zimbabwe says the new currency will, among other things, increase the country’s exports

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Holding bills of new Zimbabwean money, a man welcomes the introduction of 'bond notes' saying the move will ease cash shortages in the country, in Harare, Zimbabwe, Nov. 28, 2016. (S. Mhofu/VOA)

Zimbabwe is issuing a new currency, known as bond notes, that officially are equal to the U.S. dollar. The government has gone ahead with the plan despite warnings the new currency will fuel hyperinflation and worsen the already ailing economy.

On Monday, there were still long queues at most ATMs in Harare, despite the release of the new bond notes, which are intended, in part, to ease long-running cash shortages.

The Reserve Bank of Zimbabwe says the new currency will, among other things, increase the country’s exports.

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But economist Prosper Chitambara, of the Labor and Economic Development Research Institute of Zimbabwe, says the bond notes will worsen the country’s situation.

“The costs may probably outweigh the intended benefits. Most of the economic agents in Zimbabwe have to buy imports from outside our borders. So they would require either U.S. dollars or South African dollars, or other internationally tradable currencies to be able to do business. Actually the bond note has even exacerbated the macroeconomic sustainability. It has eroded confidence within the financial system. It has created a lot of uncertainties in the market. Investors are not going to be interested in doing business in Zimbabwe,” Chitambara said.

A till operator poses with new bond notes at a supermarket in Harare, Nov. 28, 2016, VOA
A till operator poses with new bond notes at a supermarket in Harare, Nov. 28, 2016, VOA

Zimbabwe’s economy has been struggling for nearly a generation now, since President Robert Mugabe’s government embarked on a controversial land reform program in 2000 which displaced white commercial farmers off their land without compensation.

That affected the country’s backbone, agriculture. What followed were hyperinflation and shortages of almost all goods.

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In 2009, Zimbabwe abandoned its own worthless currency and it has been using all major foreign currencies, but mostly the U.S. dollar.

Now it has introduced bond notes, despite calls to abandon the plan as it might cause the economy to take a nosedive. That advice fell on deaf ears. (VOA)

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Rupee Depreciation Against Dollar Leads to Sharp Rise in Crude Prices

The rupee lost heavily towards the end of the week - over 70 paise in the last three trading session.

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rupees, Dollar, Currency
The currency losing against the dollar and rising crude oil prices was a double whammy for the bond markets. Pixabay

In a choppy week’s trade, the Indian currency weakened against the US dollar to close above the 71 a dollar mark on Friday, owing to a sharp rise in crude oil prices, turmoil in the equity markets and uncertainty around the US-China trade relations.

In what could translate into further trouble for the domestic currency, analysts see an upward move of 6 to 7 per cent in the Brent crude prices in the coming week.

The rupee lost heavily towards the end of the week – over 70 paise in the last three trading session – as traders reacted to the sanction on Venezuela and production cut by OPEC and Saudi Arabia.

Sajal Gupta, Head Fx & Rates Edelweiss, said “technically … crude now looks set for another 6-7 per cent rise” which would mean that the rupee was likely to depreciate further in the coming sessions. “And if Rs 71.80 per dollar is broken, we can head towards Rs 72.50 mark.”

Rupee, Dollar, Currency
The rupee lost heavily towards the end of the week – over 70 paise in the last three trading session. Pixabay

Among other factors impacting the currency, Gupta said, with crude and dollar index giving breakout, rupee would remain under pressure. Trade deficit data released on Friday post market was also not very encouraging with monthly deficit touching almost 15 billion dollars.

“Political tensions would also remain heightened with key leaders vowing strong retaliation in wake of the biggest terror attack in the Kashmir valley.”

Explaining the factors which has caused volatility, Anindya Banerjee of Kotak said the currency markets largely depend on the capital flows … and right now the fear of a possible retaliation by the government in response to the Pulwama attack is having an affect.

“The context of the whole event is also important because (Lok Sabha) elections are around the corner,” Banerjee said.

Also, the currency losing against the dollar and rising crude oil prices was a double whammy for the bond markets, he added.

On the global front, discussing the factors affecting the currency, Banerjee said, the Chinese economy was very fragile right now and moreover investors were looking for developments in the US-China trade talks.

Rupee, Dollar, currency
India on Friday revoked the Most Favoured Nation Status (MNS) of Pakistan which has led to decline in equite markets for 6 straight years. Pixabay

However, Gurang Somaiya, currency analyst, Motilal Oswal, felt that the rupee was protected from any major weakness as “Foreign Institutional Investment (FII’s) came around good”, especially in February.

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According to data from the bourses, FII has seen inflows worth Rs 1,096 crore in February.

India on Friday revoked the Most Favoured Nation Status (MNS) of Pakistan and has warned that more stern actions will follow the attack in Pulwama. Additionally, equity markets have declined for 6 straight sessions showing weak investor sentiments. (IANS)