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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)

Next Story

Zimbabwe Ends Its Interim Currency in New Currency Reform

This move is really beginning to restore full monetary policy

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Zimbabwe, Currency, Reform
FILE - People walk past the Reserve Bank of Zimbabwe building in Harare, Zimbabwe, Feb. 25, 2019. VOA

Zimbabwe made its interim currency the country’s sole legal tender on Monday, ending a decade of dollarization and taking a another step towards relaunching the Zimbabwean dollar.

The central bank also hiked its overnight lending rate to 50% from 15% as a part of a set of measures to protect the RTGS dollar introduced in February.

“The march towards full currency reform is part of our transitional stabilization program,” Finance Minister Mthuli Ncube said in a video posted on Twitter. “This move is really beginning to restore full monetary
policy.”

Zimbabwean President Emmerson Mnangagwa, who replaced longtime leader Robert Mugabe after an army coup in November 2017, is trying to repair an economy ruined by hyperinflation and a long succession of failed economic interventions.

Zimbabwe, Currency, Reform
Zimbabwe made its interim currency the country’s sole legal tender on Monday. Pixabay

But a hoped-for economic turnaround is yet to materialize, and many Zimbabweans are distrustful of Mnangagwa’s promises.

Mnangagwa’s government last month agreed a staff-monitored program with the International Monetary Fund (IMF) whereby the fund will help Zimbabwe implement coherent economic policies.

Analysts are skeptical that the latest currency reforms will be a quick fix for the deep problems that have constrained economic growth in the southern African country.

“Zimbabwe will have to show results before people are convinced,” said Jee-A Van Der Linde, an economist at South Africa-based NKC African Economics.

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Van Der Linde said banning the use of currencies such as the U.S. dollar and South African rand could create panic since Zimbabwe did not have large foreign-currency reserves to back the RTGS dollar.

There was nothing standing in the way of the Zimbabwean central bank printing money as it had done in the past, he added.

The central bank said in a statement on Monday that it had put in place letters of credit worth $330 million to secure imports for important goods such as fuel.

It would also try to boost liquidity on the interbank forex market by removing a cap on margins for banks and making sure that more than 50% of the foreign currency that Zimbabwean companies have to surrender ends up on the interbank market.

Zimbabwe, Currency, Reform
The central bank also hiked its overnight lending rate to 50% from 15% as a part of a set of measures. Pixabay

Zimbabwe abandoned its own dollar in 2009 after years of hyperinflation had destroyed trust in the local unit.

Mnangagwa said this month that Zimbabwe must reintroduce its own currency by the end of the year.

The IMF has said Zimbabwe should quickly allow the RTGS dollar to float freely, allow exporters to sell dollars at the interbank rate rather than surrender them to the central bank, and raise interest rates to curb inflation.

The RTGS dollar has been hitting new lows on the black market in recent days.

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It was trading between 11 and 12 against the U.S. dollar on the unofficial market on Monday versus a level of around 6 on the official interbank market.

Many Zimbabweans complain that goods and services are still priced in other currencies.

While more than 80% of Zimbabweans earn RTGS dollars, goods ranging from bricks to groceries have their prices pegged in U.S. dollars.

Inflation raced to 97.85% in May, eroding salaries and savings and causing Zimbabweans to fear a return to the hyperinflation era a decade ago. (VOA)