Zimbabwe: Hyper-inflation hit the republic yet again, this time it’s the fault of launching the Bond-Notes!

(We have got the Judas Iscariots amongst us); they are manipulating the currency so that they trigger inflation” – President Robert Mugabe on Thursday this week (Chibamu, 2017).

When they launched the Bond-Notes in 2016, the borrowed money from China to launch a new currency. Like that sounds like fresh and sound financial policy. Not like Zimbabwean African National Union – Patriotic Front (ZANU-PF) and President Robert Mugabe unleashed this for the supposed benefit of the citizens. Since the former currency we’re put into death-bed and was total worthless by 2009.

So now that its gone some time, the reports of a black-market with currency exchange, the lack of petrol and others springing bad news. It is international ones that are also looking at the signs. Even if the ZANU-PF Ministers and loyalists to Mugabe, is saying it is only smoke, but no fire. Clearly, there are more into it, than they want to admit. Because, we all who followed the launch and the misuse of funds from the cronies close to Mugabe, knew that a uncontrolled inflation might hit the republic again. Mugabe will blame anyone, like he didn’t create this issue himself. If not his wife who spends fortunes in South Africa, buy luxurious cars like Rolls Royce and the sons of family spends time on lavish hotels there. They are acting like Zimbabwean Royal Family, the perks of diving into the state reserves.

Well, the Zimbabweans are in long lines getting petrol, while the Bond Notes values are getting to level, that they are worthless. That the Bond Notes are far from being One to One exchange with United States Dollars. That ship has sailed and the unfortunate citizens of Zimbabwe, who has to again see the Bond Notes, second crypto-currency in a decade fall to pieces. The destruction of the economy is evident. The statistics of the inflation should worry anyone. Just take a look!

This hard budget constraint became too onerous for the free spending government to abide by. In consequence, Zimbabwe’s government has employed Harry Houdini’s magic and circumvented the hard budget constraint imposed by dollarization. It has done so by creating a new fake dollar, which is referred to as the “New Zim Dollar.” Not surprisingly, this new Houdini creation is rapidly becoming worthless. This makes the methodology that I employed to measure inflation during Zimbabwe’s hyperinflation episode relevant again. Since Old Mutual’s price on the Zimbabwe Stock Exchange is denominated in “New Zim Dollars” and Old Mutual’s price on the London Stock Exchange is denominated in British pound sterling, we can create a “New Zim Dollar”/sterling implied exchange rate. This exchange rate can be transformed using PPP to accurately measure Zimbabwe’s inflation. At present (09/29/17), Zimbabwe’s annual inflation rate has soared to 242.72%” (Hanke, 2017).

More ominously, from the perspective of Zanu-PF, is that, as coffers dry up once again, Robert Mugabe’s government will struggle to pay some of the institutions so crucial to it remaining in power, such as the civil service, the military and the police. Bond notes were the government’s short-term answer to its long-term economic problems. But instead of providing the solution, they are proving to be an expensive mistake” (Allison, 2017).

RM: Do you foresee Zimbabwe sliding into the 2008 inflationary trap? What is your comment on this? Chris Mugaga: We might not necessarily slide into a hyper-inflationary trap, but we need to guard against it. The money changers have started causing havoc and the informal market players have been creating artificial shortages. All that must stop and this will assist in managing the inflationary threat. Last, but not least, fiscal spending also has to be managed as funding a fiscal deficit can lead to inflation” (Muzavazi, 2017).

Markoni, who once served as an economic adviser in the regional block, SADC, said Mugabe’s decision to introduce bond notes – a surrogate currency meant to alleviate the cash crisis – set in motion trial of events that led to the total collapse of the country’s financial services sector. “Bond Notes are not the solution and we have always said this. The price increases are just symptoms reflecting the situation on the ground and Mugabe can order the Zambezei River to flow back to Angola but it just won’t because of the forces of nature” said the former Finance minister. “Such forces of nature also apply to the value of currencies and that is why you see that the bond notes have not mitigated the cash crisis and collapsing economy, it has worsened it instead”. He added”(Tarenyika, 2017).

If you thought this would be sunshine story, your wrong. The reality is that the plan for the Bond Notes was flawed from the outset. I am far from surprised by the output of the currency. The whole borrowing to print the currency was made for a disaster. It was just a matter of time, when the state and cronies would print to much and make sure their we’re lacking amounts of cash in the system. As well as the foreign exchanges lacking funds to change between the United States Dollars and the Zimbabwean Bond Notes. There are enough profound evidence of trouble that could occur and which did.

The economy and financial policy was not made for the benefit of the citizen, but a short term gain for the ZANU-PF. But you can wonder who really earned on it before the inflation hit this time. As the usual suspects would be able to comply, but won’t since they will stay silent since they earned on the scheme. The crones like Mugaga will make it seem like normal and under control, while it is not. Because they know that the numbers are terrible and a doctor in the United States publishing it in Forbes, wouldn’t all of sudden find the numbers on a random spread-sheet. Therefore, the reality should hit the fan. Even if Mugabe never will take the blame. There will be someone falling on the sword, neither will be Rolls Royce driving Grace Mugabe, neither Bob, but someone who is easily gotten rid of in the cabinet. Peace.

Reference:

Allison, Simon – ‘Can Zanu-PF afford another currency crash?’ (29.09.2017) link: https://mg.co.za/article/2017-09-29-00-can-zanu-pf-afford-another-currency-crash

Chibamu, Anna – ‘Zimbabwe: President Mugabe Stays Put, Scorns ‘Judas Iscariots’ (29.09.2017) link: http://allafrica.com/stories/201709290092.html

Hanke, Steve – ‘Zimbabwe Inflates… Again’ (30.09.2017) link: https://www.forbes.com/sites/stevehanke/2017/09/30/zimbabwe-inflates-again/#221257d10d68

Muzavazi, Runyararo – ‘Let’s guard against the hyper-inflationary trap’ (30.09.2017) link: http://www.herald.co.zw/lets-guard-against-the-hyper-inflationary-trap/

Tafirenyika, Mugove – ‘Former Finance Ministers speak on the economic rot’ (29.09.2017) link: https://www.dailynews.co.zw/articles/2017/10/01/former-finance-ministers-speak-on-economic-rot

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