Despite protests and a run on the banks, Zimbabwe today issued a new currency — bond notes — adding to the eight currencies already in circulation and stoking fears that the move is a ploy to bring back the Zimbabwean dollar.
Hyperinflation in 2008 had Zimbabweans paying 50 billion Zimbabwean dollars for an egg and 100 trillion dollars for a weekly bus ticket, BBC reported.
The Zimbabwean dollar was abandoned in 2009 and the U.S. dollar has been Zimbabwe’s main currency since then.
The new bond note is worth $1 US, and will be officially interchangeable 1:1 with the US dollar, according to the Reserve Bank of Zimbabwe (RBZ). The central bank promised to keep a tight lid on issuing bond notes, Reuters reported.
The government insists the bond note is not an official currency and will have no value outside of Zimbabwe. It says it is introducing the new notes to tackle the cash shortage and stop the flow of US dollars exiting the country. Bond notes will become one of nine currencies accepted as legal tender in the country.
Currencies accepted in Zimbabwe’s multi-currency framework include the rand, Botswana pula, pound sterling, Indian rupee, euro, Japanese yen, Australian dollar and the U.S. dollar, according to XE.com.
First announced in May, the bond notes have fueled some of the biggest protests against President Mugabe in 10 years.
Out-of-control money printing caused a multi-billion percent inflationary meltdown in 2008, and many Zimbabweans are skeptical about the new bond notes. The plan has caused a run on the banks as Zimbabweans empty their accounts of hard currency.
Zimbabweans across the country wait in lines through the night until the banks open at 8 a.m., emptying their accounts the moment their pay or pensions arrive — if the bank has any money left.
Banks have responded with daily withdrawal limits in amounts that differ from day to day.
Industrial fitter Edmund Panganai, 40, told Reuters it takes him at least seven nights waiting in line to get his pay.
It’s possible that the bond notes, if they crash, could mean the end of Mugabe’s 36-year rule, according to internal intelligence briefings seen by Reuters:
A Sept. 29 Central Intelligence Organisation report revealed the powerful army was as unhappy as the rest of the population with the new notes and had told Africa’s oldest leader to “wake up and smell the coffee”.
“Top security officers have told Mugabe not to blame them if Rome starts to burn,” the report said.
Reuters was unable to determine the author of the report. It is also unclear if Mugabe has seen the report, whose final audience is not specified. Mugabe’s spokesman did not respond to requests for comment, nor was the CIO available.
But the report offers a rare glimpse into the thinking of Mugabe’s security forces – the backbone of his power – and their concerns about the implosion of what used to be one of Africa’s most promising economies.
“Mugabe was openly told that the bond notes are going to cause his downfall,” the report said.
Opposition to the forced introduction of bond notes is expected to continue, Newsday reported.
Many critics of the bond notes are calling for Zimbabwe to adopt the South African rand, including Zimbabwe tourism Minister Walter Mzembi, who predicts the surrogate currency will be disastrous for tourism.
University of Zimbabwe lecturer and economist Ashok Shakravathi agrees Zimbabwe must adopt the rand.
“We do not need to talk to the South Africans, but just do as we did with the US dollar. It is a fact that in 2009, about 60 percent of the currency circulating in the economy was the rand and we can adopt that currency informally,” Shakravathi told Newsday. “All prices should then be charged in rands and (the government’s) budget should also be in that currency. That way we can bring stability into the market.”
Adopting the rand won’t solve the country’s problems, said Tendai Biti, former Zimbabwean finance minister, government critic and leader of the opposition People’s Democratic Party. He accuses the government of theft and said bond notes are a stop-gap measure to cover their corruption.
“This is a way of trying to fill a big hole they have created by stealing depositors’ money kept at the central bank,” he said. “We all live under the illusion that we have money when in actual fact we do not. The solution is political. We are tinkering with the deck when the Titanic is sinking.”
In the end, Zimbabwe will likely move on to the naira, Biti predicted, according to Newsday. “But that is not a solution. We need political solutions,” he said.
Residents who withdraw money from a bank today in Zimbabwe will be issued with bond notes, BBC reported. But on the streets, there seems to be little confidence in the currency. People fear the bond notes won’t hold their value against the dollar.
“If the current experiment with bond notes even looks like taking a step backward to the hyperinflation of seven years ago, not only will the economy’s very survival be in jeopardy, so too will the government’s,” BBC reported.
The first test of the bond notes will be in the informal foreign exchange markets on the streets of Harare, according to Reuters:
If they fall heavily in value, they are likely to unleash an inflationary spiral that could bleed the banking system of its last few dollars and wipe out Zimbabweans’ savings for the second time in less than a decade, economists say.
The same happened in 2008: powerful individuals with access to dollars at the official 1:1 rate were able to buy bond notes at a discount on the unofficial market and then convert them back to dollars at face value.
“You start with one dollar, then you’ve got 10, then you’ve got 100, then you’ve got 1 000 – and it’s not even lunchtime,” said John Robertson, one of Zimbabwe’s most respected private economists.
Instead of concentrating on the currency issue, Zimbabwe needs to deal with its toxic policy environment, said Promise Mkwananzi, a social activist and front man for Zimbabwe’s Tajamuka political campaign.
“The authorities are chasing the wrong things,” he said. “They need to deal with the investment environment, repeal the indigenization law and such other toxic legal statutes that have kept investors away.”
The government cannot afford to ignore the people’s views, said Obert Gutu, spokesman for Movement for Democratic Change Zimbabwe.