Could It Be We Missed That Bond Notes Actually Served Their Purpose?

Before you light your torches to burn me alive, I am well aware of the current situation as regards bond notes. Ever since their introduction at 1:1 with the USD, bond notes have been on a steady decline. Granted that decline has reversed since President Mnangagwa took office.

I know that some saw the bond notes as a ploy by the government to take hard currencies from our hands and stuff our pockets with a cheap replica instead. It sometimes feels like that’s exactly what happened.

I know that we all associate the bond notes with the disappearance of foreign currency in the economy, the price hikes and the long bank queues. Queuing for 3 hours to get $20 is hardly anyone’s cup of tea.

We know that the RBZ did not intend for any of that to happen, at least we hope. The only problem is that they ignored the warning signs that people would not accept the bond notes wholeheartedly. That’s unfortunate.

However, let’s judge the bond notes on what they were intended to achieve for a minute. Let us look at what the RBZ aimed to achieve with the bond notes and see if they at least achieved something. Not that we believed the reasons they gave, but let’s try.

Where it all started for bond notes: bond coins

Bond coins were a precursor to the bond notes, paving the way for the notes like John paving the way for Jesus.

Believe it or not, it’s almost three years we’ve had bond coins. Why were they introduced though, considering we didn’t ask for them and were very vocal that we didn’t want them? Let’s take it from the horse’s mouth, the RBZ,

Bond coins are meant to provide change and their usage should have an impact of rounding down prices. Bond coins give an option for change as they are being used to buttress the multiple currency regime.

I think we can all agree that the coins achieved that. The amount of sweets we got as change declined sharply with their introduction.

Problem is that although we appreciated the convenience the coins brought, we were very skeptical of the government’s motives and future plans after the coins’ relative success. We feared the coins would open the door to the introduction of a new currency, a new Zim dollar.

Introduction of the bond note

We did not have to wait long for our worst fears to be realised. Less than two years after the coins came the announcement that higher denomination notes of the same bonds were coming.

When it came to the notes the RBZ could not run with the same ‘to provide change‘ excuse they used on the coins. Yes, I just said ‘excuse.’ That’s what we all thought of the given reasons for the introduction. In launching the bond notes, the RBZ said,

Bond notes are issued as an incentive to exporters of goods and services and are available for use by the transacting public within Zimbabwe.

You might be thinking, were bond notes not introduced to alleviate the cash crisis? Yes they were. The reasoning was that promoting exports leads to inflow of foreign currency into the country. Promoting exports also means promoting productivity which in turn leads to fewer imports. More hard currencies coming in and less going out, ’twas quite a plan.

So, did the bond notes lead to an increase in exports as was the plan?

Uh, how can we put this? What we can definitively say is that exports increased since the introduction of bond notes in November 2016. Can this increase be attributed to the notes? RBZ certainly thinks so,

As the funding mechanism for the export incentive scheme, bond notes are an integral part of the export success story of the Zimbabwean economy over the past year now.

Exports for the 10 months to October 2017 amounted to $2.9 billion compared to $2.2 billion for the same period last year, the period before the bond notes.

Can we really attribute this $700m increase in exports to the bond notes? Is it really as simple as, we introduced bond notes and a year later exports increased, so the bond notes worked? On this one you have to decide for yourself.

If we agree that the bond notes were single-handedly responsible for the increase in exports would that be enough to call them a success? That is considering the other negative events they set off in the economy.

One of those negatives is the emergence of a multi-tier pricing model. All this USD1:1,5bond business. That practice of different prices for USD, bond cash, RTGS and swipe. Dr Mangudya, the RBZ governor sees it differently,

To suggest or to think that a medium of exchange like bond notes cause a parallel market for foreign exchange is quite unfortunate and oblivious of the fact that premiums on RTGS transfers are much higher than on bond notes or mobile payments.

So he maintains that it is the fact that we import more than we export which caused the parallel market. The bond notes according to him actually alleviated the severity of the foreign currency shortages.

We, with our limited knowledge cannot argue with the Doctor, all we know is that since the introduction of the bond notes, the foreign currency shortages worsened. Was that because of a lack of confidence in the system? Possibly. The bond note drove the USD away, that’s how we the lay people see it.

What we know is that the disappearance of the USD coupled with the depreciation of the bond note meant we were left with bank balances that had a significantly reduced purchasing power. Reduced by the factor that the bond note depreciated, which got to 80% at some point.

What does it all mean in the end?

If we judge the bond coins and notes by what the RBZ said they were meant to achieve it kind of looks like they are a success. This however only works if we look at the data in isolation and draw conclusions from that.

Bond coins eased the small change problem we had.

Bond notes were introduced and exports increased.

These are facts.