New bond notes-key questions answered

How exactly do these bond coins and notes get their value?

Every currency gets its value from a particular source. This may be gold or currency reserves. In the case of bond coins and notes, their value comes from a bond facility from the Afreximbank. In 2014, Afreximbank put up a $50 million bond, a form of a loan, for bond coins introduced to ease the shortage of change in the economy. The planned bond notes are backed by a new $200 million bond, also from Afreximbank. The bond coins and bond notes derive their name from the fact that they are guaranteed by a bond facility.

What is to stop the RBZ from printing more than that $200 million?

Under the facility, which is monitored by Afreximbank, the RBZ cannot produce more notes or coins than what is guaranteed by the bond from Afreximbank. As at the end of December, RBZ had minted bond coins worth $14 million, and expected to produce a further $6 million at the start of 2016, according to the 2016 budget statement.

Why not just release that $200 million into the market instead of bond notes?

If RBZ does that, that money would still leave the country. The whole idea of the bond notes is to make sure that cash stays in Zimbabwe. However, the RBZ is unlikely to release notes worth the equivalent of the whole $200 million at the same time, but will more likely phase-in the notes depending on demand.

Continued next page

(875 VIEWS)