Zimbabwe: Mixed Views On Bond Notes

Financial Gazette Harare Shame Makoshori
Displayed with permission from allAfrica.com

THE introduction of bond notes on Monday ahead of schedule left the market divided, even as it appeared that the controversial currency had received widespread acceptance from the market.

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The Reserve Bank of Zimbabwe (RBZ), which had initially indicated that the bond notes would be launched yesterday, surprised everyone when it made the new currency available to the public on Monday.

As it became clear that Zimbabwe’s new currency in seven years would not only fund a five percent export incentive as promised by the RBZ in May, but also be broadly available to all depositors seeking to withdraw their United States dollars from banks, some consumers and activists took to social media protesting.

But informal traders such as those in Harare’s Siyaso market, which trades an assortment of hardware and other products, said they had embraced the new currency.

Kombi operators, who constitute another critical constituency that determines the success of the new currency, were also accepting bond notes from the commuting public.

Zimbabwe’s informal sector controls about 50 percent of the country’s gross domestic product.

In Bindura and Mount Darwin, the Financial Gazette witnessed informal traders accepting bond notes from Tuesday.

Initial scepticism over bond notes in the early hours of Monday when they were introduced was replaced by general acceptance by most leading supermarkets in Harare, including all TM and OK outlets.

In Mutare, informal traders were accepting the notes early Monday.

« We accept bond notes. That is the money we have now so we have no choice but to accept it, » a vendor said.

In Harare, the exchange rate between bond notes and the US dollar was largely kept at 1:1 in the first two days.

But in Bulawayo, reports said at the « World Bank », a black market for currencies, traders were discounting bond notes by up to 20 percent, according to informal traders.

There was a surprise development on the market, which critics said may have been linked to the new bond notes: Consumers were rattled by a sharp rise in basic commodity and fuel prices on Tuesday, which captured the panic mood that enveloped the country.

The Confederation of Zimbabwe Retailers (CZR) confirmed a wave of price hikes in Harare, but said they were working with the central bank to address retailers’ concerns.

« We discovered that some retailers have hiked prices but people are getting to accept the bond notes. There was consternation among some traders especially cellphone retailers, but they have since started accepting them because they have realised that those who are accepting them are actually benefitting, » said CZR president, Denford Mutashu.

In one supermarket, a dish washing liquid which cost US$2,69 last week was hiked to about US$3,15 on Monday, while another dish washing powder saw its price suddenly move to US$5,22, from about US$4,80 on Friday last week.

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A leading supermarket increased the price of Lifebuoy soap to US$1,35, from US$0,99 last week, adding to a long list of price hikes that kicked off as banks began rationing the new currency to contain a potentially disastrous run on deposits.

In the streets of Harare, where huge numbers of unemployed graduates make a living through informal trade, the feared bond notes black market failed to take off in the first two days of introduction.

Traders said they had been hamstrung by the « drip release » of the currency whose value was too little to cause a vibrant currency black market.

Only US$12 million in bond notes was brought into circulation, although the central bank plans to introduce US$75 million by the end of this year.

On the local bourse, share prices went up after a buying spree by investors.

The Zimbabwe Stock Exchange’s industrial index rose to 135,7 points on Tuesday after starting the week on 132,9 points on the day bond notes were introduced on Monday. Market analysts said the firming prices were a result of speculative buying.

« The market has been responding positively in the past week. It is being driven by investors who have cash which they cannot take out of banks and are therefore buying stocks. Dividends for foreign shareholders are locked up here. These investors are saying if I cannot take my money out of Zimbabwe let me use it in Zimbabwe by buying shares, » said Tapiwa Sibanda, a market analyst at advisory firm, Trade Winds.

But the most chilling analysis about prospects for Zimbabwe was released by the Economic Intelligence Unit (EIU), which warned that confrontations between the RBZ and POSB Bank on Monday could spread across the entire market.

The mass market banking concern, POSB Bank was slapped with a US$500 000 fine after releasing pictures of bond notes before an embargo imposed by the RBZ lapsed.

« A number of public demonstrations against the notes have already been held, while a major protest is planned for November 30th, » EIU said in a statement on Monday.

« The protests are in part driven by increasing scepticism about previous pledges by the RBZ governor, John Mangudya, that no one will be forced to hold bond notes. Mangudya has warned bankers that they must not set up separate accounts for the bond notes; rather, they will be paid into existing dollar accounts thereby making them indistinguishable from legal dollar deposits.

« Customers will pressure banks to separate dollar deposits from bond note deposits in a single bank account, while the RBZ will try to prevent this. This could potentially lead to a confrontation between banks, seeking to placate their customers, and an increasingly desperate central bank, faced with the task of ensuring there is enough cash in the system to keep the economy afloat, » EIU said.

Bond notes, which are valued at par with the greenback, have been issued to ease cash shortages.

The notes, first announced in May, were expected to start circulating in July.

However, there had been delays in their introduction caused by what many see as indecision by the central bank and widespread public opposition.

There is already a two-tier money market in Zimbabwe.

Cash transactions have a high value than transactions carried out with debit or credit cards.

Some firms priced products lower for cash and higher for debit cards.

Petroleum retailers charged a five percent discount for cash paying customers this week.

Zimbabweans had taken to the streets in protest against the new currency, fearing a return to hyperinflation similar to that which peaked at the end of 2008.

newsdesk@fingaz.co.zw

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