×
NewsDay

AMH is an independent media house free from political ties or outside influence. We have four newspapers: The Zimbabwe Independent, a business weekly published every Friday, The Standard, a weekly published every Sunday, and Southern and NewsDay, our daily newspapers. Each has an online edition.

Bond notes: The paradox of poverty in the midst of plenty

Opinion & Analysis
Is Mangudya a sincere man? He probably is. But you must not care about his sincerity, worry about that of the people who put him in that job. He is what Europeans would call a fencepost tortoise. Be diligent. With these “musketeers in power”, its heads they win, tails you lose. This time don’t be […]

Is Mangudya a sincere man? He probably is. But you must not care about his sincerity, worry about that of the people who put him in that job. He is what Europeans would call a fencepost tortoise. Be diligent. With these “musketeers in power”, its heads they win, tails you lose. This time don’t be caught sleeping.

Ken Yamamoto

bond-coin

Lovemore (Zimbabweans have interesting names), a regular reader of my column emailed me. “Hi Ken, have you heard of ‘Bond notes’ in Zimbabwe”. He seemed apprehensive about them. He is scared and has lost confidence in the future.

“You should not be scared”, I wrote back. “Because you should have seen it coming.”

The dilemma of some Zimbabweans is to think that you can plant a lemon tree and then harvest strawberries and oranges. The English say you reap what you saw. In Japanese we say jigou jitoku which means, just desserts. Life presents choices and we must decide. After deciding, we must live with the consequences. Every action we take has consequences, and we must live with them. If we are lucky, we must take remedial action to correct the outcomes of those choices.

A hare-brained idea The DC-based Atlantic magazine on May 6 had a story headlined “Zimbabwe’s Own US Dollar Bills”. That headline paints the ridiculousness of the idea. But anything goes in Zimbabwe. John Mangudya, who runs the Reserve Bank of Zimbabwe (RBZ) has announced the introduction of bond notes, which he claims are backed by a $200 million loan from Afreximbank. Why Afreximbank would take a $200 million loan risk on Zimbabwe, in addition to another facility they provided to improve banking transactions last year is a question for another day. After realising that his hare-brained innovation is causing panic, Mangudya has tried to “clarify” his announcement, adding that they will be issued to exporters as an incentive. This, he wants his countrymen to believe, will not affect the average person, but will affect the exporter.

The Zimbabwe Dollar is back In August 2015, I wrote an oped entitled, Why 2016 will be far worse (http://bit.ly/22Gyzvt). I gave a gloomy prognostication of the Zimbabwean economy. Unknown to readers, I had used a computer simulation to project the Zimbabwean economy based on factors that are more or less constant. In my analysis, which I did not include in that article, I had determined that Zimbabwean managers would start implementing desperate measures at around this time, and they sure have. I also wrote of the same in January 2016 — you can find the article on (http://bit.ly/1Tx1CK0).

So what exactly is this bond note? Make no mistake about it, through these notes Zimbabwe is bringing the Zimbabwe dollar back using a different name. As English author Shakespeare wrote, “a rose by any other name would smell as sweet”. I would hazard to say a skunk by any other name would smell as bad. This is the trouble with the RBZ’s proposed bond notes. It’s the Zimbabwean dollar coming back cloaked under an Afreximbank facility, which nobody has seen except the people that claim it exists. This is why the Atlantic magazine would say that Zimbabwe is printing its own US dollar bills because it’s ridiculous to call them US dollars. It’s deceitful because currency is backed by real value, you can’t just make a claim that you are pegging your own notes to the US$ that are not backed by known value. It’s been heard of that currency can be backed by gold and other precious metals, but not backed by another currency. Never think that this new measure is the same as the bond coins one. As noted by the Atlantic article, other countries that have also adopted the US dollar as their currency such as Panama, Ecuador and East Timor have issued their own coins that are valued the same as American dimes, quarters, or nickels —nothing new; but the risk of those coins is minimal.

Currency bonded to some debt somewhere doesn’t exist in conventional economics — it has the potential to be some form of Ponzi scheme. It’s fictitious, which is why it’s cloaked as an export incentive. You can’t take money deposited in genuine bank accounts and then exchange it for fictitious money. It’s for Zimbabwean lawyers to explore if the bond notes and the forced exchange of US dollars for a softening South African Rand is lawful, but one would have to be an idiot to accept the Rand since it’s a soft currency and South Africa President Jacob Zuma’s antics of lurching from one scandal to another will see it continue to see-saw. Therefore, a measure created at the whims and caprices of a political mafia, which has the effect of destroying the wealth of citizens is problematic from every perspective.

In the past, the same RBZ destroyed people’s wealth and lifetime savings through its actions. I doubt that anybody trusts the central bank in Zimbabwe, including the political mafia itself. Interestingly, the same “musketeers” who ran the central bank under Gideon Gono are still running it, with a new face — Mangudya. The same people that advised Gono from 2004-2008 are still there — Charity Dhliwayo, Mirirai Chiremba, Norman Mataruka and Morris Mpofu among others. The same people who would steal foreign exchange from customer accounts cannot be trusted when they claim that a bond of equal value to the bond notes exists. For the avoidance of any doubt, a judgment by Zimbabwean courts was issued against Standard Chartered Bank (SCB) in the case of Standard Chartered Bank Zimbabwe Limited versus China Shougang International for money stolen by the RBZ — (see my article about this on http://bit.ly/1Ntg4zj). So the grand question is: if the RBZ has stolen money from private accounts, where did the money go, and can you trust it with anything? Does the so called bond even exist? Who has seen it? Can they be trusted with printing money? Who will restrict them from printing more paper notes than are secured by the so-called bond?

A confidence game as much as it is a store of value Currency value is a confidence game. There is not much other science to it. Mangudya has complained that the US dollar is overvalued in Zimbabwe, and that it is being used more as a store of value rather than a medium of exchange. This is foolish logic (an intended oxymoron). The two are not mutually exclusive. While money must both be a store of value and a medium of exchange, it follows that money must store value first before it’s acceptable as a medium of exchange. Otherwise, it goes the way of the Zimbabwean dollar.

l Ken Yamamoto is a research fellow on Africa at an Institute in Tokyo. He researches and travels frequently between Uganda, Kenya, Rwanda and Zimbabwe. Email your views to [email protected]