Assumptions:
1. People will use plastic money and they will not need cash
2. Low denominations of 1, 2 and 5 will discourage burning
3. The circulation of bond notes will be limited to exporters only
4. Bond notes will be backed by a $200 million Afreximbank facility
5. The 5% bond note incentive will create USD6 billion worth of exports
6. Prices will remain denominated in USD and the bond note will be at par with the USD so that is the rationale behind bond notes.
Unintended Consequences
1. Low confidence will result in depositors withdrawing USD balances, externalising it or keeping it under mattresses. Lessons of hyperinflation still linger. Already banks have further reduced withdrawal limits because USD balances are dwindling.
2. The USD will migrate to the black market where it will be exchanged for bond notes at a very high exchange rate. So exporters and anybody needing forex will have to go to the black market or apply to the RBZ
3. The bond notes will by default become the only currency in circulation as the USD and Rand will only be found on the black market. This will confirm the view that the bond note is a indirect way of reintroducing the Zim dollar
4. Imports will be restricted due to the rationing of forex.
Conclusion:
WHAT WILL HAPPEN? IT all depends on confidence. As things stands confidence is zero. Therefore the likelihood of unintended consequences are extremely high.
Dr. Tapiwa Mashakada
Shadow Minister of Finance
(176 VIEWS)
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