Why bond notes can’t save Zimbabwe and what ordinary citizens can do

The Zimbabwe dollar was abandoned in 2009 after the government ran the printing presses so wildly that the national currency became worthless. The country then adopted the US dollar as its currency.

OPINION BY Tendai Biti & Todd Moss

But, as of November 28, 2016, Zimbabwe has a new quasi-currency “bond note” that is supposed to trade at equal value to the US dollar.

The government claims that the new currency was necessary because the economy was running out of real dollars. They have promised that they will only print up to $200 million, backed 1:1 by a supposed new international loan of $200 million, which is veiled in secrecy.

Given the government’s past behaviour — recklessly printing money, raiding private bank accounts, destroying the value of pensions and savings — citizens are right to be highly sceptical. But even if citizens decide to believe the government that bond notes will be strictly voluntary and that they will stick to the $200 million limit, there’s no reason to think that bond notes will have any, but the most temporary, effect.

That’s because printing bond notes is attacking a symptom (cash shortages), not the disease (a broken economy).
Despite grand claims, the government cannot outrun the basic laws of economics. The Reserve Bank of Zimbabwe (RBZ)declared that bond notes are valued at 1:1 with the US dollar, but this cannot be sustained, because of underlying fundamentals.

Merely the fact that bond notes are not legal tender anywhere outside the country’s borders means that the US dollar is more valuable. So a bond note cannot have a true value of 1:1, and the rate is absolutely certain to rise over time.

The idea that Zimbabwe’s problem is just a shortage of physical cash is nonsense. The cash shortage reflects the underlying problems of the economy that government spends beyond its means, that policies have killed incentives to invest, and that people have no confidence in the government to support a national currency of their own.

Since the inflow of US dollars (from export earnings, investment, or new loans) is low and the government cannot print real US dollars, the inevitable result is a scarcity of cash.

Fears of bank failures or other calamities encourage rational people to hoard their hard currency.

Yet bond notes are bound to fail, no matter what the government does.

If the RBZ sticks to the $200 million limit, then it’s far too small to have much difference in the economy.

That level is equivalent to just $13 per citizen. Even if that $13 is traded often, that is not even close enough to relieve the true cash squeeze. Remember that Zimbabwe’s economy imports $6-billion per year — or $500 million per month — all of which must be paid for in hard currency. Worse, the one-time injection of $200 million does nothing to resolve the underlying cause of the cash crisis.

If, on the other hand, the RBZ decides to print much more than $200-million in order to flood the market with bond notes, then expect to see the exchange rate explode on the black market.

It is a simple matter of supply and demand again: too many bond notes chasing too few dollars.

The result will be a surging exchange rate — and the further collapse of consumer confidence and rush to hold hard currency.

So what’s a patriotic Zimbabwean, who loves their family and their country, supposed to do?

Refuse bond notes if you can. The RBZ issued “Frequently Asked Questions about the Bond Notes” which explicitly states (point 16): “Bond notes… will not be forced on anyone who do (sic) not want them.” Citizens should hold the government to its promises, and refuse to accept the notes.

If you must, trade them immediately for goods that will hold value. Buy anything that will be worth something tomorrow.

Even better, sell them as fast as possible. Safer than holding livestock or bags of rice a hard currency.

The RBZ promised (point 19): “Bond notes are redeemable for any other currency within the multicurrency system… one can redeem the bond notes for USD … at any bank … the public has a choice of either keeping or transacting in the bond notes of converting them to other currencies.” Citizens should demand hard currency as promised. If they cannot get dollars at the bank, they should sell them immediately.

Cash enables transactions and stores value. The best that Zimbabweans can hope is that bond notes will allow some small transactions that would otherwise not happen in an economy where currency is hard to find. But no one should have any illusions that bond notes will hold their value or do anything to help the economy get on a true path to recovery.

Zimbabwe’s economic problems are deep-rooted and require a holistic, sustainable solution. Bond notes are an attempt to address the symptoms of an ailing economy, not the causes.

Without a political solution, the country’s decline will continue unabated.

Tendai Biti served as Zimbabwe’s Finance minister in 2009-13. Todd Moss is senior fellow at the Centre for Global Development.


  1. madofo , maduzvi anabiti.
    its not ppractical

  2. Obviously the reserve bank has access to all the necessary information, both from highly qualified experts as well as intelligence from the ordinary people and the man on the street.

    All our efforts to enlighten the governor, are similar to a grade one student trying to teach his parents what he learnt at school. It may be amazing to us, but they already know it. At one meeting with citizens and thisflag the governor had an expert lawyer seated next to him who gave them a good lecture on a lot of facts which they, the protesters, were absolutely in the blue about.

    The move is deliberate, but the results are what count. They may take a no care attitude, not caring whether it results in a bigger embarrassment (as we have been the joke of the planet).

    For us lay people is to pray that they consider. The more we implement economically suicidal measures, the poorer this country will get and eventually it will be reduced to a beggarly republic, in urgent need of international assistance.

    The lawyer he was with and others can flee in the event of crises, health educational etc but we the ordinary people cannot. We will just trust that with their knowledge, they did it all in good faith as we wait to see the results.

  3. Biti all you are doing is trying to pushe people to the black market so that the bond system fails. You are pathetic and short of political ideas. Your desire to seek political revelance is not only sickening but contemptuous. Take a seat youngman, you are are a failing at least politically. You are trying to make sure the pilot fails to steer the plane but forgetting that when the plane crashes all passengers will die.
    I’m so ashamed with your assertions, but then again that’s what happens when a lawyer with poor economic advisers try to be an expert in a wrong field. We can see through your propaganda that you are trying to create a self fulfilling prophecy. I do not like ZANU PF, but I at least give them thumbs up for trying.

    1. Exactly what is Zanu PF trying if I may ask? You are the stupid one. Much as I don’t like Biti for his shallow political mind, he makes sense here. Give me one good reason why someone who banked USD in cash should now be forced to take part of his money in bond notes? Why? Bond notes that you can’t even use across the border. This is the reason why a black market for bond notes and foreign currency is inevitable. The banks will not be able to give you USD when you need them so what choice do you have but to buy the dollar using the bonds at a price. These bonds will eventually chase few dollars causing the exchange rate to crash. I expext a 100% crash before year end.

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