Six months after it first announced the bond notes, Zimbabwe, at the end of November, finally introduced the currency to an apprehensive market.
Reactions to the currency – like everything Zimbabwean – have been polarised, with some predicting a doomsday scenario, evoking the ghosts of inflation past, while others see the bond notes, which have been mockingly called Mugabe’s funny money, as messianic and would reduce the cash shortages that have become a hallmark of the Zimbabwean economy.
The government, on the other hand – with public media in tow – have been desperate to convince Zimbabweans, and more importantly themselves, that bond notes have been widely accepted.
The truth lies somewhere in between.
The responses to the bond notes have been at times hysteric and irrational.
Fears of a return of a currency black market and inflation are farfetched – not to say they won’t happen – but not now.
The highest note introduced is only $5, which is unlikely to contribute to inflation and a black market. But my thoughts are that there is going to be increasing demand for bond notes, while US dollars are increasingly going to become scarce, forcing the government to print higher note denominations.
This is where economists can chip in and talk of Gresham’s law, bad money chasing good money and the like.
On the other hand, with US dollars increasingly becoming scarcer on the market, importers like fuel companies and supermarkets will be forced to swap bond notes for dollars and, as demand for foreign currency increases, this will come with it an exchange rate that will make a mockery of the central bank’s 1:1 exchange rate between the US dollar and the bond.
Failure to access US dollars will result in shortages that will make 2008 look like child’s play.
This will not happen overnight; it is a process. Ask me six months from now, when we would have wiped out all the US dollars and the bond note is more ubiquitous.
Then there is the lot that is celebrating that bond notes are being accepted and their evidence is long queues at banks, where people are accepting the funny money.
It’s funny what desperation can do to an otherwise reasonable person.
Most people are either getting that money to pay for services or quickly converting them to US dollars. This involves, for example, going into supermarkets and looking for customers using US dollars and asking to swap, so they can use bond notes instead.
On the face of it, there is acceptance and it will look like that for months, but in reality, any reasonable person is holding onto their US dollars and waiting for when the proverbial hits the fan.
The central bank says it will only introduce $200 million bond notes (who still believes that export incentives nonsense?), but this is barely enough for anything really. So in the not so distant future, Zimbabwe will face a shortage of both US dollars and bond notes.
My apologies for being this pessimistic, but this is what Zimbabwe has taught me and I fear the worst, but I will be happy if I am proven wrong.