Zimbabwe: The Bond-Notes are creating higher prices on goods and a big black-market for currency exchange!

The launch of the Bond Notes has been hectic and been untrustworthy. Zimbabwe has been hit with economic difficulties, as to the policies and thieving of the state reserves. That is why the inflation and value of the currency dwindles. As well, as the lack of trust of the currency and the central reserves issued notes, are the reason for the troubling issues with the monetary policies. The Zanu-PF government have been more preoccupied with serving themselves, than the people who are spending the notes.

The questions in the beginning of the of the current value of a note issued on a loan through Afrieximbank, this means the state was taking on debt. This is was to issue a new currency, a temporary note that was gaining new debt to the state. Just take a look!

Chakravarti, a University of Zimbabwe economics professor, said keeping the peg is only depreciating the value of the Real-Time Gross Settlement system (RTGS). He noted that the Confederation of Zimbabwe Industries had revealed that the RTGS premium to real money is now at 30%, meaning if one had US$1 000 in RTGS, they only have US$700 in real money. He added that it was “pointless” to have the Afrieximbank facility, which the central bank said backs the bond notes, if it is not convertible.” Chakravarti said it was unhealthy for the economy to have government crowding out funding for the private sector. He noted that the country has the highest tax-to-GDP in Africa which is 30% against the continental average of 22%, a situation he described as unviable. Chakravarti predicted that by December this year bond notes will constitute 50 to 60% of the currency in circulation which will qualify it as a local currency” (Ndebele & Kuwaza, 2017).

Dollarisation has two forms, namely, official/de jure and unofficial/de facto. BMI Research found that an increase in bond notes was actually de-dollarising the economy. BMI Research warned last week that increasing money supply would contribute to an accelerated growth of inflation from 1,4% by year-end to 8,5% in 2018 — making the steepest growth since 2009. “The Reserve Bank of Zimbabwe’s (RBZ) decision to more than double the size of its bond-note programme — to $500m from $200m previously — confirms our view that the country is headed towards de jure de-dollarisation,” it said” (Zwinoira, 2017).

Because Zimbabwe imports more than it exports, the black market is now influencing pricing trends. As such, a transfer now attracts a 48 percent premium, while cash transactions for smaller denominations range between eight and 9,5 percent, depending on the currency involved. For larger notes such as US$50 and $100, it can cost the buyer up to 10 percent. The majority of companies, whose payments fall outside the Reserve Bank of Zimbabwe (RBZ) priority list for accessing the elusive US dollars in banks, rely on bank transfers to get the coveted currency on the parallel market. As a result, prices for all basic consumer goods have gone up by between 20 and 50 percent as companies and retailers pass on the costs to the ordinary consumer” (Bulawayo24, 2017).

We can easily see that the trustworthy levels of Bond-Notes isn’t there, as the businesses not connected with Reserve Bank of Zimbabwe payment system makes the exchange of currency more expensive. The trust was already bad before the issue of the bond-notes before June 2016. It haven’t got better, it is worse as the percentage cost is 10%.

Therefore, the value of the Bond-Notes has made ordinary life harder. The prices on ordinary goods has gone up. This because of the issue of the Bond-Notes and the whole fiscal policy, that is clearly not working. Peace.

Reference:

Bulawayo24 – ‘Value of Bond Notes Tumbles’ (05.09.2017) link: http://bulawayo24.com/index-id-business-sc-economy-byo-117175.html

Ndebele, Hazel & Kuwaza, Kudzai – ‘Officialise bond notes, govt told’ (01.09.2017) link: https://www.theindependent.co.zw/2017/09/01/officialise-bond-notes-govt-told/

Zwinoira, Tatira – ‘‘Zim heading towards de-dollarisation’ (04.09.2017) link:https://www.newsday.co.zw/2017/09/04/zim-heading-towards-de-dollarisation/

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