HomeLocal NewsZim urgently requires new economic model: RBZ boss

Zim urgently requires new economic model: RBZ boss

ZIMBABWE is facing its worst economic turmoil since dollarisation in 2009. Long-winding queues have become a common feature at banking halls as the United States dollar dries up due to export collapse and associated problems. This week, the Zimbabwe Independent projects editor Bernard Mpofu (BM) speaks to Reserve Bank of Zimbabwe governor John Mangudya (JM) on pressing economic and monetary policy issues. Below are excerpts of the interview.

BM: What impact has the $94 million worth of bond notes had on the liquidity and cash shortages situation?

JM: Bond notes were introduced as a funding mechanism to support the export incentive scheme to promote the export of goods and services, including diaspora remittances. The Reserve Bank is of a considered view that Zimbabwe now needs a new economic development model that is anchored on an export-led growth strategy whilst simultaneously addressing structural reforms in order to increase domestic output and productivity. We believe in the provision of incentives to expand production and productivity in Zimbabwe. Production should precede consumption and incentives should be a reward on performance.

Bond notes were therefore never intended to be a solution to the cash crisis, but as a reward for exporters for the generation of foreign exchange that we all cherish in Zimbabwe. It is a subsidy for exporters to become competitive on the backdrop of a strong US dollar and depressed commodity prices. The bank is also encouraged by the trickle-down effect or secondary downstream benefits of bond notes in mitigating cash shortages. Their circulation as a medium of exchange within the economy is encouraging and traders are depositing the notes on a timely basis as it would not make economic sense to hoard bond notes unlike what happens with the US dollars.

BM: Before the introduction of bond notes in November 2016, you announced that there would be an independent board to monitor the bond notes in circulation. What has changed since then?

JM: That is still the position. The independent board is required to ensure integrity and restore confidence within the financial system. As you may be aware, the appointment of the independent board was temporarily delayed by the need to ensure that the Bill to amend the Reserve Bank Act is passed by parliament. This was done and the Bill now awaits presidential assent. Once the Bill is signed then the independent board will immediately be put in place.

BM: Some critics say bond notes have resulted in arbitrage and price distortions, with some retailers putting a premium on those buying using bond notes or through point-of-sale machines. What is your comment on this?

JM: That is misleading. Bond notes are at par with the US dollar (1:1) since they are supported by the US$200 million facility. If there are traders abusing bond notes in that manner, then they are short-changing consumers as bond notes are banked into US dollar bank accounts. There are no separate accounts for bond notes.

The bank would like to strongly warn unscrupulous retailers and service providers who are short-changing customers by engaging in multiple pricing on the pretext of offering cash discounts to desist from such market indiscipline. The multiple pricing activities are counterproductive to the economy. The Bank Use Promotion and Suppression of Money Laundering Unit of the Reserve Bank, has stepped up its monitoring activities, to ensure that businesses comply with best practices. The transacting public is also encouraged to always be on the lookout for such unscrupulous businesses and report them to the bank.

BM: We have noticed that the US dollar has become scarce since the introduction of bond notes yet you announced that the bond notes would be introduced to the market in sympathy with export growth. What do you attribute this shortage to?

JM: Each bond note in the economy represents a proportion of up to 5% of the foreign currency earned on exports generated by the economy. It stands to reason therefore that banks are retaining the bulk of the foreign exchange for foreign payments. Bond notes will continue to circulate in the economy alongside other currencies in the multiple currency system.

BM: Last year you introduced daily withdrawal limits at banks before gradually increasing them after the introduction of bond notes. When is the policy going to be relaxed?

JM: The policy is already relaxed and in line with best practice. We are advocating for a cash-lite society. Whilst the bank is encouraged by the manner in which the Zimbabwean banking public has embraced the use of plastic money, we would like to continue to promote the use of e-payment solutions that include e-payroll to mitigate against the residual queues for cash at some banks, especially at month-ends. E-payment solutions are a more efficient and secure mode of transacting. I hate to see people queuing at banks to withdraw cash. Queuing at banks is not the best way to utilise valuable time.

BM: What will the central bank do after the US$200 million facility is exhausted?

JM: As alluded to above, bond notes were never meant to be a solution to deal with the shortage of physical foreign currency cash in the country but as an incentive to promote the export of goods and services. Shortage of foreign currency within any economy reflects the discrepancy between supply and demand for foreign currency.

The permanent solution for foreign currency shortages is to produce more goods and services for both the export and domestic market. We need to expand national output and productivity in Zimbabwe. We need to create strong national firms and institutions to drive the new economic development model under the new normal to increase employment and national output. Zimbabwe needs to aspire to regain its status of being the bread basket of Africa. Working to achieve this developmental agenda is the permanent solution for the challenges besetting the national economy.

The bank is doing its part to address the supply-side development under the export incentive scheme to enhance the generation of foreign currency. Depending on its success, more foreign exchange resources would be made available in future to buttress the export bonus scheme and to transform the economy towards an export-led growth.

To be continued next week.

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  1. I despair! Words, words, words – and more words. signifying NOTHING. My brother said the only useful thing he learned in Economics was the Law of Supply and Demand.

    Without dissolving into thousands more words, the answer is simple. The value of a currency is determined by the value of exports versus the value of imports. Money cannot be “created” out of nowhere, money, value has to be earned through making things, mining things or growing things – and then these are sold on to others.

    Our economy can never recover unless and until Government loosens its death grip on the economy in the fruitless attempt to control everything and anything. Left to their own devices entrepreneurs in agriculture, manufacturing, mining or whatever will “make a plan” – to make money. The secret of a strong economy is economy is for Government to LET GO.

    But in Zimbabwe, everything you want to do is frustrated by some arm of government or the dead hand of Corruption. If we had the Rule of Law and a limit on corruption and control the country would surge ahead. Remember how the economy started to recover under the GNU? Ask yourself what killed it? Of course, the re-election of ZPF with all its empty promises and unlimited corruption. Every time Chinamasa tried to solve the problem, he was overruled by Mugabe. And some wonder why the economy has collapsed?

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