REPORT BY BELOVED CHIWESHE
One such story is the introduction of new bond coins regime by the Reserve Bank of Zimbabwe (RBZ), whose fissiparous governance and role in the fiscus has been riddled with ambiguities and obfuscations, perpetuating doubts about its credibility in managing an alternative parallel currency to the globally dominant United States dollar.
The RBZ on December 5 2014 unveiled a set of coins that will go into circulation on December 18 2014. The coins will be in denominations of 1c, 5c, 10c and 25c pegged at par against the US Dollar.
The initial set of coins will be augmented by the 50c coin in March 2015. According to a statement by the RBZ: “The economics of the bond coins is that they are being introduced to buttress the multiple currency system through the provision of change . . . and . . . to necessitate correct pricing for goods and services which hitherto was constrained by the absence of an appropriate system of coins.”
At face value it may seem a noble intervention, but do stakeholders still have confidence in the RBZ?
The economic meltdown, hyperinflation and profiteerism of yesteryear have every Zimbabwean worried about tomorrow. The question lingering on everyone’s mind is: could this signal the return of the Zimbabwe Dollar? It could be! What then are the possible scenarios and fate of the coins regime under the current political, economic and historical contexts?
This piece will seek to present possible scenarios that may play out following the introductions of these coins to enable troubleshooting, and for stakeholders to act accordingly when interacting with this new, but not so new creature on the financial scenery.
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The article will outline possible scenarios and using the elimination technique, in a matter of months we will all know the scenario that will have prevailed. Some scenarios may be seemingly far-fetched and alarming, but events in Zimbabwe are highly unpredictable.
On the strength and weaknesses of this instalment as well as criticisms and critiques of the same, other authors will also develop further scenarios that will contribute to the politico-economic optical lenses through which the economic crisis, post the introduction of bond coins will be deciphered.
The scenarios are not exhaustive and not presented as what will happen, but rather a set of what may, or may not happen and conditions that drive each of the scenarios.
It must be stated from the onset that the prescribed solution is addressing a non-existent problem, there is a time when there were challenges regarding change, but it’s a problem of the past and not one of the key challenges.
It must also be stated that there are a number of service providers that already do not accept coins (US and Rand); will they embrace the new bond coins? The RBZ has a history of printing notes and availing them to dealers to procure forex on the blackmarket, could it be that there are some quarters purporting to be addressing a non-existent problem so that they create opportunities for profiteering?
What are the chances of the coins being used to mop up forex on the black-market? Secondly, that the coins will result in price adjustments is not plausible, Delta Beverages for example, lowered the cost of beer and other beverages, but the prices slash never had any impact at the level of the consumer, beer is still pegged at $1 at most bottle stores.
Only time will tell if prices of some services will go down as a result of the introduction of these coins.
It must also be stated that the market adjusted itself, abandoning the bearer-driven Zimbabwe dollar currency system for forex well before government put in place a policy framework for the multi-currency regime, as such the fate of the coins will solely lie with the stakeholders more than with the government and other regulative authorities.
Issues of trust and confidence in the coins regime will go beyond pronouncements that coins will not be minted locally and that the circulation will be tightly regulated to tangible evidence of the commitment through delivery if the coins are to be accepted.
This will be purely a case where perceptions may matter more that reality. The list of possible scenarios and conditions accompanying them follows:
Scenario 1: Natural AcceptanceUnder this scenario, bond coins will go into circulation and get natural acceptance from all stakeholders. The Reserve Bank will carry out massive education and awareness programmes on the coins and assure stakeholders that it is not a return of the Zimdollar.
There is no possibility for counterfeit coins and the new currency is be used alongside the other currencies in circulation and there are no challenges regarding change and exchange rates since the current official currencies go beyond the dollar and the rand.
The revenue from candy, chocolate, phone credit and other commodities that were used as substitute for change will significantly go down. In reaction to availability of change, retailers will seek a competitive advantage through lowering prices by a few cents and prices such as $3,37 will be a common feature on the counters of many supermarkets.
Commuter omnibus operators and vendors will play a critical role in the acceptance of these coins as legal tender and be able to use the same as payment at service stations. One will be able to trade in and bank the coins and have his revenue recorded in US dollars without challenges. The coins will maintain the same value as the US dollar and inter-currency exchanges with the rand will be well managed.
Generally there will be public confidence in the coins. In rural areas people will be able to buy traditional brews in the villages using the coins without challenges as the brewers are confident they will be able to use the coins to trade in the city.
With the informalisation of the economy, this scenario may work out very well if there is confidence in the coins.
The central bank will stick to its promises that only 10 million dollars of coins will be brought into circulation at the specified time, and that the money will not be used for quasi-fiscal activities as was the case under Gono.
Generally the RBZ would avoid the suicidal and careless route of discrediting coins. The reserve bank will also take appropriate actions to prove transparency in the manner in which it is conducting business and the public is satisfied. Jokes about people losing money do not circulate on social media and there is no panic.
This is a very unlikely scenario as Zimbabweans have lost trust in the local currency. People lost confidence in the local currencies since a number of people lost money during the transition to the multi-currency system, and as such they will be reluctant to put their trust in these coins. People will avoid having huge sums and this may limit circulation and cause alarm.
It must be noted that this scenario may play out at the introduction phase of the coins, but with time depending on how the currency performs there may be gradual rejection as people face challenges regarding the use of the coins. The scenario is described in detail under scenario 3.
If confidence is built in the coins there is a danger that the RBZ can make a decision, piggy-bagging on the strength of the coins to introduce a local currency in higher denomination notes despite promises that there will be no return to the Zimdollar any time soon.
With the introduction of notes that have a higher value, financial shenanigans by the not so dull dealers may trigger an economic Ammergedon describes in Scenario 5.
Scenario 2: Natural rejectionUnder scenario 2 there will be natural rejection of the coins; the coins will fail to get any traction from stakeholders and will die a natural death. Fear of what happened in the past will drive the averseness to the coins regime. Commuter omnibus operators and vendors will be key players under this scenario.
Despite massive education and awareness programmes people remain sceptical of the coins and they remain stashed in banks and not make it into circulation.
Social media will be awash with jokes of how people will lose money causing panic among stakeholders. Retailers may refuse the coins wholesomely or the lower denomination coins such as the 1c.
Cross-border traders will fail to find places to convert the bond coins to forex since the coins are only valid in Zimbabwe. As a result the coins become less and less acceptable and stakeholders become more sceptical.
The rural folk after selling their commodities they are paid using the coins and they attempt to use them for trade in the city and they fail to use them as retailers are sceptical. As a result the rural areas which are more conservative become a no-go area for the coins.
The coins are rejected both in the city and in the rural areas.
This scenario has a mixed likelihood depending on the attitude of Zimbabweans and the investment that will be put into the exercise by the RBZ and by other stakeholders. A scenario where the coins are gradually accepted or rejected is more likely as articulated in scenario 3.
Scenario 3: Gradual acceptance then rejectionOn the basis of the historical challenges that Zimbabwe has faced regarding currencies, there are limited chances that the coins will get automatic acceptance. What is likely is that there will be a wait-and-see attitude.
The first weeks after the introduction of the coins will be critical. People will avoid having huge quantities of the coins in the event that something bad might happen. The RBZ will continue to carry out awareness programmes, but despite these people remain sceptical.
What will trigger rejection will be driven more by perceptions than reality, a rumour that they are no longer trading at par with the US or the Rand or a rumour that the coins are being rejected by some outlets may trigger a rejection process that may result in loss of confidence in the coins.
Some people will remain stuck with the coins, but the damage will be minimal as people will not have accrued the coins in huge quantities to cause a crisis of Ammergedonic proportions.
The RBZ will concede defeat and the multicurrency system will continue in place. Scenario can also be the exact opposite, initial rejection and then acceptance with time. After delayed acceptance there are chances that the scenario described in (1) will play out with devastating consequences.
Scenario 4: Forced acceptanceUnder this scenario, following the rejection of the bond coins, the government through its relevant arms will try and force acceptance of the coins through their strategic introduction to the informal markets.
The government may also make additional policy pronouncements that the coins are legal tender and as such must be accepted by all.
The government may trigger punitive actions for those that reject coins and incentivise acceptance of coins.
This scenario also has potential for resulting in economic challenges since any scenario that allows coins to be acquired at a cost different from what it will be used to procure goods and services creates loopholes for profiteering.
At a higher level the government may also make it compulsory for those making withdrawals from banks to get part of the withdrawal in bonds.
This may trigger a series of withdrawals from banks by clients resulting in a serious liquidity crunch.
Those people that will have withdrawn coins will be forced to sell them at a lower rate to get something. Those working in banks will profiteer from aiding clients to bypass the coins provision and withdraw all their cash in hard currency.
This scenario will only be viable in the short-term, in the end it will prove to be difficult to enforce this arrangement as people will avoid banking due to fear of accumulating useless coins.
As a result of the history of our currency challenges it will be very difficult for this scenario, in as much as the political dynamics of Zimbabwe are difficult to predict, the economics is equally difficult.
Scenario 5: Economic ArmageddonThis scenario builds on scenarios above that have some form of acceptance. For this scenario considerable confidence has to be initially built before the scenario plays out.
It can even be a build up to scenario 1 which involves the bonds being extended to notes at par with the US as the coins get traction. The coins get acceptance by various stakeholders and everything seems to be going all well until for one reason or the other, the Reserve Bank or other authorities breach one or more of their promises.
As a result more coins than anticipated are in the market and before everyone knows they are being sold for half their price or less somewhere.
Scenario can also play out it there is urgent need for forex and a team of dealers is deployed with huge quantities of the coins to mop up forex from the black market.
This can be presumably to import grain for some starving populations or inputs for farmers that have in the past relied on government for input. To make this harvesting easier the coins have to sell below their market value.
As a result the coins diminish in value in some quarters, but maintain their value in banks and other quarters.
Unlike in the past where money was delivered in bags, coins are heavy thus pose a threat to the integrity of the bags. People will resort to metal trunks to transport the money from point A to point B.
Unlike notes which can be easily counted, coins can be weighed and the intrinsic monetary value is extrapolated in dollars. This scenario may or may not play out at road port this time around, but maybe in the manager’s offices of major retail shops and supermarkets under the cover of darkness.
This scenario will prevail for a shorter time than the “burning” period of 2008 because people are aware of the dangers of being on possession of huge quantities of coins
Under this scenario people will have access to coins at a cheaper price (for one reason or the other) and sell them at the official rate.
The selling process might mean buying goods from a retailer using coins acquired at a cheaper price or using them to get forex at distorted rates. In the end the system will collapse and people will once again resort to the multicurrency system and swear never again to put trust in the local currency system.
Some will lose money, some will emerge richer, and the unfortunate thing is that the elite will prosper while the poor will remain the same or get poorer in the process.
ConclusionIn short, prediction of a rosy future for the bond coins may be illusionary, there is a lot that stakeholders can do to avert an economic crisis of Armageddonic proportions.
That Zimbabwe will soon welcome an additional sets of tools for trade is a reality that we have to accept, what remains uncertain is the scenarios that will play out post the introduction.
The success or otherwise of the bond coins will depend on the attitude of the public towards the coins as well as the behaviour and actions of the central bank.
It is difficult to be objective without seeming to cause panic, but the fact remains, there is need for caution if we are to learn anything from the lessons of yesteryear.
The list of scenarios is not exhaustive; a combination of conditions can trigger a completely new scenario that has been overlooked by this paper.
If people are going to make money or lose money under any of the scenarios; the cliché that the only thing we learn from history is that we never learn from it will be proved true.
Beloved Chiweshe is with the Crisis in Zimbabwe Coalition and writes in his personal capacity. He can be contacted via email: [email protected]
