GOVERNMENT will increase money supply to the market in United States dollar terms when it introduces bond notes in October in order to neutralise public resistance, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya said this week.
By Elias Mambo
This strategy is meant also to alleviate the acute cash shortages which have resulted in long winding queues at most banks.
Government is set to introduce bond notes after the mid-term fiscal policy review which will be presented by Finance minister Patrick Chinamasa on Thursday next week. Mangudya will present his monetary policy statement soon after Chinamasa’s presentation.
Besides trying to counter public resistance to the bond notes, a significant amount of US dollars will also be introduced alongside bond notes to try to avoid the proliferation of the black market and attendant arbitrage activities.
Market players, including black market operators, have already been trying to hedge their bets since the announcement of the advent of bond notes expected in October.
Mangudya told the Zimbabwe Independent this week there is need to look at the intrinsic value of the bond notes.
“These (bond notes) will not replace the US dollar, but rather buttress it and also help to mitigate double-dipping of the nostro accounts,” he said.
“We want to put the economy back on track; so by introducing bond notes we are curbing capital flight and smuggling.
“When we dollarised in 2009, investors rushed into the market, not to invest, but to harvest the foreign currency.
In the first place we were not supposed to have utilised our reserve currency (the US dollar) as our trading currency. The narrative has to change from bond notes to production.”
The central bank chief said the country has to produce more to enhance foreign currency earnings, adding that bond notes will be used also as an incentive scheme for exporters as a production policy tool.
Mangudya pointed out that consumers will have a choice on which currency to use because all currencies will be available.
“If you go to your bank, you will tell them which currency you want so it is wrong to say we are removing the multi-currency system,” Mangudya said.
“Bond notes will be released into the market on a gradual basis in line with the level of exports. It is an export-driven scheme, implying that every bond note injected into the economy is evidence of exports within the economy.”
RBZ wants to introduce the bond notes under a US$200 million export incentive facility guaranteed by the African Export-Import Bank, as part of measures to stem cash leakages and boost exports.
Under the facility, exporters will get a 5% incentive in bond notes.