HomeOpinion & AnalysisColumnistsLessons from Liberia: Why bond notes were doomed from the start

Lessons from Liberia: Why bond notes were doomed from the start


Just under a year ago, I was one of a number of journalists, who were invited to meet Reserve Bank of Zimbabwe governor, John Mangudya just before the introduction of bond notes.


Mangudya wanted a buy-in from the media, as he was about to launch an advertising blitz on the new notes and he felt there was either misunderstanding or mischief from journalists.

I found Mangudya a likeable and approachable person, but I also felt he was out of his depth and did not fully comprehend the scale of the problems confronting the country.

A less charitable person described Mangudya as a fence-post tortoise, who has a lofty position, but has no idea what to do next.

I thought he was a tad too paranoid and was somewhat a conspiracy theorist junkie, as the seemed to believe all negative publicity about the impending introduction of bond notes was because someone was setting an agenda against him or I daresay paid to write negatively.

We expressed our reservations on bond notes, but Mangudya and his team assured they currency would work for reasons they have repeated several times.

But the past weekend exposed the fallacy that bond notes are and their vulnerability to literally any shock.

Already, a healthy currency black market had developed, with several rates for money be it United States dollars, real-time gross settlement systems (RTGS), EcoCash or bond notes, opening room for arbitrage and ultimately the return of inflation.

I remember writing on a different forum on the dangers of introducing bond notes, as Liberia tried something similar a few decades ago with disastrous consequences.

Just a recap on the Liberian situation, in the 1980s, that country found itself with a problem similar to Zimbabwe’s today.

They had been using the US dollar for decades prior but they were facing currency shortages, with inflation rising and the government was failing to pay civil servants and pay for services.

Sound familiar?

The Liberian government, under Samuel Doe then introduced local coins that were derogatively known as Doebucks or Doe Dollars and were said to have the same value as the US dollar.

The Doebucks were backed by a facility that the Liberian government had with South Korea, which was meant to ensure the currency maintained its value of being at par with the US dollar.

At first the Doebucks held firm, but not before long, the coins started losing their value and inflation set in again, creating a fresh conundrum for that country.
Just as Liberia, Zimbabwe’s bond notes are backed by a facility from Afreximbank – whose details have still not been made public – as the country struggles with cash shortages.

Mangudya may have been well meaning when he introduced bond notes, but the reality is he was dealing with a sceptical population, which does not trust the government and does not want the authorities anywhere near the money printing press.

The central bank boss may argue that the Afreximbank facility was meant to ensure that the currency retains its value against the US dollar, but that agreement remains shrouded in secrecy and that heightens mistrust.

Mangudya also promised to set up a board to monitor bond notes and he still has not done, so almost a year later and that heightens suspicion that there is something fishy with this currency.

Transparency would have gone a long way in assuaging Zimbabweans’ fears, but with a deal whose hallmark is opacity, who can blame Zimbabweans for not having confidence in their currency.

At the meeting, Mangudya seemed to take exception to an editorial comment in NewsDay that described the Zimbabwean mentality as fragile when it comes to currency issues.

This fragility was exposed at the weekend when people went on a panic buying spree after the circulation of a patently false message warning that the next three to five days would be catastrophic, as prices would sky-rocket and shortages would set in.
Although the message was false, very few people chose to second guess it and instead chose a run on supermarkets because of the fears that shortages were upon the nation again.

The ghost of 2008 still haunts many people and memories of that period are still fresh in the minds of many and it is easy for them to believe fake messages that prey on their fears – that is the fragility that we were talking about.

RBZ on Saturday afternoon issued a statement advising that there was no need for panic, as they had everything under control, but Zimbabweans are sceptical, suspicious and have no faith in their authorities when it comes to monetary issues and they continued on their panic-buying sprees.

Mangudya has often said on the monetary side there is enough money to cater for the economy and he has done everything that he promised he would, but on the psychological side, many are worried about what they see as an inevitable impending collapse.

The central bank may wonder why there are cash shortages and bank queues are persisting, and this may be because people are quickly converting all the money they have and keeping it as US dollars under their mattresses at home because they fear they will be a rupture at some point.

Some will point out that bond notes seemed to be working since their introduction and yes they did work, but like the Doebucks before them, it was unavoidable that they would one day lose value and not trade at par with the US dollar.

Mangudya may have thought he was being innovative with the bond notes, but Liberia beat us to that innovation and we could have done well by taking lessons on what happened eventually to their Doebucks.

Recent Posts

Stories you will enjoy

Recommended reading