Hard currency just got a whole lot harder to get in Zimbabwe

In just one week, the cost of cooking oil, cereal and butter imported from South Africa leapt by as much as 30 percent.

One Harare banking source said the Reserve Bank of Zimbabwe’s (RBZ) Fidelity Printers and Refiners division sparked the panic two weeks ago by offloading a large quantity of dollar “bond notes” to buy gold from small-scale mining firms.

When the newly minted notes, nicknamed “bollars”, hit the streets, currency dealers assumed the central bank was mopping up greenbacks from the black market, sending the value of real dollars soaring.

Bond notes are the third form of dollars used in Zimbabwe, besides cash and zollars. Like their electronic counterparts, the quasi-currency notes are meant to be equivalent to dollars issued by the US Federal Reserve but they are now worth less.

The notes, backed by an opaque $200 million loan facility from the Cairo-based Afreximbank, were first introduced in November. This week they were trading at 1.3 to the dollar after weakening to as much as 1.5 in late September.

The banking source said RBZ’s Fidelity, Zimbabwe’s sole gold trader, was paying mining firms for gold 60:40 in dollars and bond notes, compared with only dollars a month ago – and that had fuelled suspicions the RBZ was running out of hard currency.

Reserve Bank of Zimbabwe Governor John Mangudya denied Zimbabwe was locked in another currency crisis. He told Reuters the bank was spending $1 million in bond notes a week to buy gold but said that should not affect currency market values.

“In an economy with $180 million of bond notes, I am not very sure whether that amount could have been responsible for a few days’ change in economic fundamentals of premiums in the parallel markets,” he told Reuters.

However, the situation is febrile and fluid.

To try to prevent a run on the domestic banking system, the government has tried to kill the black market with decrees giving the police more powers and stating that illegal currency traders face up to 10 years in prison.

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