By early May, the liquidity situation had degenerated badly enough to force Zimbabwe’s central bank to announce a battery of measures to manage the crisis – including reducing cash withdrawal limits and exports.
However, with its plans to introduce a token currency backed by a $200 million African Export Import Bank (Afrexim Bank) facility, the central bank could not trigger a more panicked reaction if it flung a hyperinflation-crazed cat in a dove house made of $100 trillion Zimbabwe dollar notes.
Amid mounting anxiety about a deepening economic crisis, the planned token currency — dubbed bond notes because of the bond facility backing their issuance — have triggered frequent street protests.
Former vice president Joice Mujuru has taken the government to court, arguing that it “cannot introduce a bond note and cause it to masquerade as a form of currency. The law has only two options; either the Zimbabwean dollar or foreign currencies’.
The overwhelming fear of the impending introduction of bond notes — slated to start circulating in October 2016 — is that President Robert Mugabe’s hard-up government could resort to printing again with disastrous consequences.
Those concerns have come too late, some market watchers contend. Zimbabwe has been effectively printing money since 2012, when it started using treasury bills to help fund its budget, they say.
In trying to explain the causes of Zimbabwe’s banknote shortage crisis, leading investment firm, Exotix Partners, which specializes in frontier and illiquid markets, says the southern African country has effectively had a local currency since 2012.
In a July 20, 2016 research note on Zimbabwean banks, Exotix says the notion that the government lost its capacity to print currency upon dollarization in 2009 is a myth.
“In our opinion, there have been two myths in the Zimbabwean economy post dollarisation. The first is that there is no local currency and (the) second is that the Government of Zimbabwe cannot print money,” Exotix said.
“To explain why these are myths, we have tracked the historical trend in ‘hard cash’ (i.e. cash that is immediately available to the banks in either notes and coins or in their nostro accounts abroad) and compared this to system deposits.”
In 2009, Zimbabwe’s banking system held $582 million, about half of total deposits, in ‘hard cash’ – immediately available to banks in notes and coins as well as accounts held outside the country.
By April 2016, hard cash had declined to $269 million, or just 6 percent of total deposits.
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