RBZ allays Bond note inflation fears
Reserve Bank of Zimbabwe building in Harare

Reserve Bank of Zimbabwe building in Harare

Business Reporter
THE Reserve Bank of Zimbabwe (RBZ) says the introduction of bond notes into the economy would not lead to inflation. In a public notice meant to allay public fears over adoption of the new monetary measures, the central bank said the adoption of an export bonus scheme and bond notes, were a strategy to stimulate export production to ensure maintenance and sustenance of the multiple currency system.

The new notes – to be introduced in two ‘months’ time’ – are backed by a $200 million facility from the Afrexim Bank with their value indexed at par with the United States dollar. “Bond notes will not cause inflation because the amount in circulation would be small and limited by the size of the facility, which is capped at $200 million,” said RBZ.

The central bank explained that the prevailing economic fundamentals were different from those of the hyperinflation period of 2008, where domestic production was almost non-existent and all new money that was injected became inflationary.

“At the maximum of $200 million as dictated by the facility, bond notes would only constitute four percent of the total banking sector deposit base.

“This measure is a very important step in stabilising the economy and to safeguard against externalisation and capital flight,” it said.

The RBZ said Zimbabwe will continue using the multiple currency system whose level of inflation has generally remained low averaging -0,2 percent in 2014, -2,4 percent in 2015 and -2,5 percent as of March 2016.

Unlike prior years, the central bank said bond notes will circulate alongside other multiple currencies.

Given the background of low domestic production and widening trade deficit of about $3 billion, the RBZ has introduced a performance related export incentive or bonus scheme to be awarded to exporters of goods and services.

“The country needs more exports to liquefy the multiple-currency system. As an incentive/bonus for exporters, the Reserve Bank would pay up to five percent incentive to exporters of goods and services.

“The bank is also putting in place measures to deal with externalisation and the inefficient distribution and utilisation of foreign exchange,” it said.

There has been a lot of speculation since the RBZ unveiled plans to introduce bond notes.

Pessimists questioned why the RBZ took such a stance as they feared the move would take the country back to the dreaded inflationary years. Some suspected bond notes would lose value like bearer cheques.

 

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