I wrote this article on 1st January 2015!
The newly minted bond coins released on December 18th, 2014, are facing the challenge of being accepted by consumers who recently experienced hyperinflation of the Zimbabwe Dollar which was legal tender until 2009. The bond coins are pegged at 1:1 to the U.S. Dollar. It means with 100 bond coin cents; you get 1 USD equivalent. If that is the case, why are they being rejected?
First of all, consumers are still smarting from their experience with hyperinflation and this bond coin may be seen as the return of the ZWD despite assurances from the government that this was not the case. Is a hundred bond coins equivalent to 1 bond dollar? Remains to be seen how much the government is trusted in its word.
Secondly, the bond coins are only valid tender within the Zimbabwe borders which means they have to be changed into USD, South African Rand, Botswana Pula or some other forex, if one intends to import goods or go on holiday. If one designed to travel within a few days, they might reject the bond coins preferring other more trusted currencies. Effectively our forex ‘reserves’ are leaving the country where we can spend them thus benefitting the economies of those countries. Even when our shop shelves are stacked with goods, most of them are imported hence the foreign economies benefit. We have a trade deficit which means we import more than we export. As a result of this, we are losing forex inside the country.
This makes the introduction of bond coins suspect. When Gideon Gono was governor, he printed his way out of liquidity challenges and bought forex off the streets to fund import obligations. Because he was spending the forex outside the country, the only way to get more forex was to print more ZWDs.
The question is: will government slowly then quickly mint more bond coins then bond dollars and return to the previous hyperinflationary situation of early 2009? With an economy which is not performing, it’s reasonable to predict such an outcome. We need to produce goods and services to avoid losing money to competitive economies.
The government needs to craft policies that attract local and foreign investment. The current indigenisation policy is vague and political. It has failed to attract investment and must be revised urgently. There seems to be no consensus in government on the need to review the policy. ZimAsset is the government’s ambitious economic blueprint which not only lacks the upwards of USD40 billion funding but is also being implemented by a team which has failed to achieve previous fully funded plans such as ESAP. The 2014/15 budget statement by Patrick Chinamasa was unable to provide funding for the blueprint urging individual ministries to source their funding. With about 90% of the USD4.4 billion budget going to salaries, it’s small wonder the plan remains a pipe dream.
The introduction of the bond coins fails to address real economic challenges and adds to the loss of confidence in the government’s ability to revive our fortunes. It is an embarrassing policy intervention from a governor who has no currency to print his signature.
All images are from Pixabay.