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John Mangudya

THE introduction of bond notes by the Reserve Bank of Zimbabwe to stop the flow of United States dollars out of the country is a masterstroke by monetary authorities as the move will not only prevent capital flight but will also ease the current cash shortages. We feel the decision was inevitable given the prevailing macroeconomic environment characterised by widespread illicit financial flows.

There are many factors that contributed to the cash crunch and these include massive externalisation of the US dollars by businesses which have found Zimbabwe to be a cheap source of the much sought after greenback. The country’s voracious appetite for imports has not helped matters with the balance of trade heavily skewed against Zimbabwe especially with its biggest trading partner South Africa.

This meant that while Zimbabwean businesses were not generating much foreign currency, the little that was available was being used to finance importation of finished products depleting the meagre resources in the country. Following the introduction of the multicurrency system in 2009, the US dollar and the South African rand were the most widely used currencies but due to the firming of the former and depreciation of the latter, Zimbabweans have progressively turned to the dollar, creating a high demand for it.

A strong US dollar has also been catastrophic for the Zimbabwean economy as it meant that the country was now expensive for investors and tourists alike. There is low confidence in the banking system in Zimbabwe with most businesses preferring to keep money at home while some foreign owned companies are reportedly siphoning money out of the country.

Due to the largely informal nature of Zimbabwe’s economy, small to medium scale enterprises, who form the bulk of the business sector, are not utilising the formal banking system hence the use of plastic money has largely not caught on in the country.

Cash remains the medium of trade and because the country cannot print the US dollar, a crisis of monumental proportions has been created by the flow of money out of the country. Monetary authorities therefore had no choice but to intervene with measures aimed at addressing the situation.

RBZ governor John Mangudya said the bond notes, which are backed by a $200 million Afreximbank nostro-support facility and are pegged at par with the US dollar, would provide a safety net against illicit financial flows. He emphasised that the notes, which will be introduced in two months’ time, did not signal a return of the Zimbabwean dollar. “This does not signal the re-introduction of the Zimbabwe currency. The fundamentals are not yet right for its comeback. This is just a measure to curb illicit flows out of the country,” Mangudya said.

Crucially, the Central Bank chief said the $200 million facility would also provide an incentive facility of 5 percent on all foreign exchange receipts, including gold and tobacco sale proceeds.

In order to mitigate against possible abuse of the facility through capital flight, proceeds from the fund would be granted to qualifying foreign exchange earners in bond coins and notes, which shall operate alongside the currencies within the multi-currency system and at par with the US dollar. Among a cocktail of measures, the central bank has reviewed maximum daily cash that can be taken inside the banking hall and at the ATM to 1,000 for US dollar and euro, and R20,000.

Maximum cash that can be taken out of the country has also been reduced to 1,000 for US$ and euro and R20,000 with immediate effect. The central bank also directed retailers, local authorities, learning institutions, service stations and informal traders to, with immediate effect, install Point of Sale devices to promote the use of plastic money. With effect from yesterday, the RBZ started converting 40 percent of new US dollar foreign exchange receipts to the rand and 10 percent to Euros.

This is aimed at ensuring widespread use of currencies and minimising against concentration risk of using the US dollar. The central bank and the business community have also come up with a priority list to guide the distribution of foreign currency towards competing demands. “The policy stance will ensure that the available foreign exchange resources are efficiently appropriated towards those sectors of the economy with the capacity to generate forex,” said Mangudya.

“This will help reduce country’s import bill and at the same time enhancing production across all sectors of the economy.” He said to encourage the widespread use of other currencies, payments for imports should be done using the currency of origin. And for effective promotion of other currencies, product pricing would need to be reflective of the multi-currency system.

“Accordingly, in view of the fact that most products in Zimbabwe are from South Africa, it is pertinent that shop owners and businesses should think in rand terms as opposed to abstract US dollar prices,” said Mangudya.

We strongly support the measures put in place by the RBZ to curb the flow of money out of the country and call on all Zimbabweans to embrace them and ensure that they work. We also urge authorities to redouble their efforts to stop the illicit externalisation of cash by businesses and individuals.