Tensions in Zim as major currency announcement likely

19 February 2019 - 18:29 By James Thompson
Zimbabweans are eagerly awaiting an expected announcement that could affect the value of bond notes.
Zimbabweans are eagerly awaiting an expected announcement that could affect the value of bond notes.
Image: Getty Images/Dan Kitwood

There was anxiety among Zimbabweans on Tuesday, with speculation rife that the central bank governor, Dr John Mangudya, would on Wednesday present the monetary policy statement (MPS), which would clearly define the path of the ill-fated bond note currency.

Officially, the bond note is trading on par with the American dollar - but market forces show otherwise. By close of business on Monday, US$100 was fetching an average of $400 in bond notes on the black market. This exchange rate also reflects on basic commodities such as milk, rice, toiletries and other household items, while fuel is now cheaper in bond notes than in hard currencies.

Last week, former finance minister in the inclusive government of 2008 to 2013 Tendai Biti sensationally claimed that the central clearing house intended to introduce a new currency within a week.

The week passed and current finance minister Professor Mthuli Ncube said: "We will do the needful (introduction of currency) when the conditions are right."

Part of the conditions, according to Ncube, are substantial forex reserves. The deputy director for economic research at the Reserve Bank of Zimbabwe (RBZ), Dr Nebson Mupunga, said Zimbabwe is currently sitting on US$600m in forex reserves, up from an estimated US$130m. The increase is due to the separation of US dollar accounts and the bond notes. This means the introduction of a new currency is fast approaching.

"In the same account, we were depositing RTGS (real-time gross settlement) and US dollars, there was pressure in terms of the actual US dollar. That is why as the central bank we took the decision to separate the accounts so as to preserve value and so as to attract those with actual hard cash to deposit in the banking sector and this has actually started paying dividends as you see.

"Now, nostro FCA deposits are on an increase to around US$600m from maybe around $130m," he told delegates at the Employers Confederation of Zimbabwe (Emcoz) breakfast meeting.

The country’s top forex earner, the mining industry has long called for the abandonment of the bond note because it stifles the industry’s growth. Artisanal miners who sell their gold to the government are paid 30 percent of their money in bond notes/RTGs.

"In other terms, my profit and part of my operation costs are paid to me in bond notes. This is not right, that’s why gold smuggling has gone up. We would rather smuggle to South Africa than donate to government," said one miner.

Early this month, mines minister Winston Chitando said he was hopeful that the RBZ in the MPS will come up with a solution to the situation faced by the miners.

"One of the current challenges which the industry is facing relates to foreign currency retention… The governor will over the next week or two come up with monetary policy intervention which would address that issue," he said.

The only success story is agriculture, mainly tobacco farming, which last year raked in nearly US$1 billion dollars in foreign currency is also feeling the bond note pinch. Farmers rejected the policy through which RBZ retains up to 70% of foreign currency export earnings from the crop while giving them only 20% in hard currency. The farmers want to retain as much as 80% of their sales in foreign currency.


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