Zimbabwe to introduce bond notes as cash shortages bite

Zimbabwe will introduce local “bond notes” and impose limits on daily bank withdrawals as part of measures to ease an acute cash shortage in the country, central bank governor John Mangudya said today.

The “bond notes” will be backed by the same $200 million Africa Export Import Bank (AFREXIM) facility used for the bond coins already in circulation and will be introduced in over two months time, Mangudya said.

Daily withdrawals will now be limited to a maximum of $1 000, Euro 1 000 and R20 000. Withdrawal limits were set at $10 000 in January when cash shortages first emerged on the market.

Mangudya has also announced that, with effect from tomorrow (5 May) 40 percent of all new US dollar receipts will be converted to rand, “in order to restore and promote the wide usage of currencies in the multicurrency basket.”

Zimbabwe is facing a worsening cash crunch over recent weeks, as a widening deficit and a stronger US dollar weigh on the economy.

The bond notes will be in denominations of $2,  $5, $10 and $20.

The southern African country’s trade deficit has widened from an average of $400 million 10 years ago to $2.5 billion in 2015.

It ditched its hyperinflation-ravaged currency in 2009 for a multi-currency system largely anchored on the US dollar, and Mangudya ruled out its return,  saying the fundamentals are not right. However, the step has left the RBZ unable to manage liquidity through printing money.

Mangudya also announced a priority list to guide banks in making foreign currency payments, with the highest priority being given to imports of critical and strategic goods such as basic food stuffs and fuel, health and agro chemicals that are not available locally.

“This policy stance will ensure that the available foreign exchange resources are efficiently appropriated towards those sectors of the economy with capacity to generate the much needed liquidity to fund the economy’s foreign payments,” he said.

Second priority will be given to bank clients in the productive sector who engage in critical and strategic imports.

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