Fear and loathing: US dollar note trade rages as Zimbabwe braces for ‘surrogate currency’

Fear and loathing: US dollar note trade rages as Zimbabwe braces for ‘surrogate currency’

HARARE, October 31 (The Source) – A Reserve Bank of Zimbabwe (RBZ) statement hit email inboxes across the country’s newsrooms just after 3pm on Monday, almost triggering coverage action plans that have been in the works since the central bank announced its intention to introduce ‘bond notes’ — a ‘surrogate currency’ — nearly six months ago.

Depending on where one stands on the highly emotive issue of Zimbabwe’s currency plans, the introduction of the bond notes could trigger an economic Armageddon or lift tortured Zimbabweans to an economic nirvana.

The heightened sense of anticipation in the newsrooms has been caused by central bank governor John Mangudya’s recent announcement, that “publicity campaigns for bond notes will start Monday, October 31, 2016.”

Early Monday calls to the central bank had elicited what has become the standard central bank response on the issue of bond notes — evasiveness tinged with unnecessary mystery.

So, it was understandable that a central bank email, delivered towards the end of the business day, drove many to the edge of their seats.

But, alas, the much anticipated central bank statement was nothing more than a ‘warning against cash dealings.’

The understated Mangudya, appointed in 2014 to succeed the histrionic Gideon Gono whose decade-long tenure at the central bank will forever be overshadowed by that 100 trillion Zimbabwe dollar note, has frequently spoken about how the Bank has broken with its past.

However, in trying to defend his controversial ‘surrogate currency’ plan, which has become a lightning rod for anti-government sentiment, the embattled Mangudya is starting to sound like his predecessor, who was a serial sabre rattler.

Mangudya’s Monday warning was in response to “some business entities and individuals (that) are reported to be selling cash, at a premium, against (electronic) transfers from the cash buyers’ accounts.”

“Some cash-generating businesses, especially retailers and wholesalers, have not been banking all their cash receipts, as required under the Bank Use Promotion Act [Chapter 24:24]. Instead, they offer the cash to companies and individual, who would make RTGS or inter-account transfers of the equivalent amount, plus an agreed premium, into the cash vendor’s account,” said the RBZ in its statement.

Banks will be required to report all transactions suspected to involve selling or purchasing of cash, the RBZ said, while the central bank’s anti-money laundering unit will increase its monitoring.

As Zimbabwe’s banknote shortage intensifies, ahead of the twice deferred introduction of bond notes, the trade of electronic US$ for physical notes has increased, at a premium of as much as 20 percent.

To manage the bank note crisis, banks have continued to reduce cash withdrawal limits — on average, individual clients can hope to get $50 per day from the bank after standing in the line for hours, while companies can access up to $300 in most cases.

Although the use of electronic payment platforms such as point of sale machines or bank transfers has increased considerably, Zimbabwe’s largely informalised economy means the bulk of transactions are still on a physical cash basis.

While the Mangudya central bank’s threats are not quite at the level of Gono’s — many bankers and business executives were arrested at his behest over a variety of allegations — many see a similar pattern emerging.

However, Mangudya’s communication of his currency plans has drawn unfavourable comparisons with publicity hog Gono.

Whereas Mangudya’s communication is reluctant at best and confusing at worst, Gono inundated the public with newspaper adverts, colourful supplements, televised policy pronouncements and radio jingles.

Meanwhile, the longer the bond notes take to materialise(their launch has been deferred at least twice), the more Zimbabwe’s crisis-weary public fervently holds onto the hope that the government could abandon plans to issue them.

Many consider to be the introduction of the bond notes as a ruse to bring back a much-loathed local currency through the back door.

With many once again spending long hours or even sleeping in bank queues where the spectre of hyperinflation, disappearing savings and food shortages loom large, the introduction of a local currency, by any name, stokes visceral fear.

However, President Robert Mugabe and his government rarely cave in to public pressure, or economic orthodoxy. Mugabe has defended the bond notes, saying criticism of the plans to introduce the currency is being driven by politics and ignorance.

The International Monetary Fund (IMF) has projected negative economic growth of -0.3 percent this year and a further slide of -2.5 percent in 2017, snapping a seven-year run of positive growth.

Now, a perfect storm is brewing — an intransigent government averse to reform and a petrified populace with no confidence in the government and its management of the economy.