It is a hot, windy summer’s day in Road Port, Harare. A Coca-Cola can blows merrily down the street. The can has freedom many others here envy. This place is seized by an oppressive gloom. It is filled by a crowd of people pushing, shoving, shouting, buying and selling. There is dirty water flowing down the street and litter fills the potholes. Yet, this grubby place is seeing more trade than Zimbabwe’s biggest banks. Here, the black market is king and the new bond notes are pawns that can be sacrificed.
“The bond notes came recently and we are business people so we have already seen an opportunity to make a bit of money. We don’t see bond notes as having any sort of value, if you have 100 bond notes, I will give you US$70,” says Tapiwa Makoni, an informal money trader.
The Reserve Bank may say bond notes are 1:1 to the US dollar; the free market says no.
“People are already getting desperate for US dollars, especially when they are traveling out of the country. They are happy to get any real currency from us at whatever rate,” he says.
It all began in May, when the Reserve Bank Governor, John Mangudya, announced the bond note. Mangudya argued the notes would ease the cash crisis that saw the US dollar become scarce. It was going to come in gradually.
“The Reserve Bank has established a US$200 million foreign exchange and export incentive facility which is supported by the African Export-Import Bank to provide cushion on the high demand for foreign exchange and to provide an incentive facility of 5 percent on all foreign exchange receipts, including tobacco and gold sale proceeds,” says Mangudya.
The bond notes don’t seem to be helping much; as they too are restricted. The withdrawal limit of bond notes is $50 per day and a $150 per week.
Despite the introduction of the bond notes – that were touted by authorities as a solution to the liquidity crisis – there seems to be little improvement.
“There is a shortage of bond notes and there seems to be less US dollars on the streets. We used to get US$100 a day, but now my bank gave me only US$50 and 25 bond notes. The money is not enough because I need cash for my buying and selling business,” says a Harare trader who refused to be named.
Neville Mandimika, Africa Strategist at Rand Merchant Bank, says the bond notes are non-convertible.
“It is by decree that it is 1:1. The problem we are facing now is that because of the misunderstanding, fear and mistrust currently circulating in the economy, the US dollar is beginning to trade against itself because actual cash is more valuable than money in the bank because of the cash shortages. So [1:1] is of theoretical value but on the street, the market is saying otherwise,” says Mandimika.
According to Mandimika, the panic and kneejerk reaction has seen people holding on to their US dollars and moving it out of the country, which mitigates against the cash crisis being eased.
“That’s why the campaign by the authorities has been to reassure the market that this is not a fully-fledged return of the Zimbabwe dollar… The bond notes will spur inflation but not hyperinflation; at least we are not there yet… Everyone is trying to adjust.”
People have to adjust to it. If you have banked money in US dollars, you may get it in bond notes. This is not a currency and can’t be traded for another currency. Mandimika says Zimbabwe is likely to continue decelerating on a multi-quarter basis because of the debilitating liquidity crisis that continues to grip it.
“The continuation of the liquidity crunch has fueled the rise of the parallel market (US dollars are trading at a premium to the bond notes) which will likely add to the inflationary pressures. Although the latest inflation prints (November 2016), shows the year-on-year figure is still negative but month-on-month numbers suggests renewed inflationary pressure. This will likely be the trend for this year in the absence of a more permanent solution to the liquidity crisis,” he says.
It means the bond notes have been met with mounting anger and questions of legality. The city is full of protest banners mounted on brick walls, advertising billboards have #NoToBondNotes plastered all over them. Peaceful protesters are thrown into jail. One of them was Fadzayi Mahere, an advocate of the High Court and Supreme Court of Zimbabwe.
“Peaceful demonstrations are a constitutional right under Section 59. A demonstration had been organized by another entity, we believed in the cause. Unfortunately the organizers got abducted so the demonstration couldn’t happen,” says Mahere.
Once Mahere and her friends got news of the abduction, they decided to sit peacefully in the park. A handful of police came and ordered her and seven others into police vehicles.
“[Our rights weren’t read to us] in fact, we weren’t informed of the charges we were facing at that time. As citizens we are required by the law not to resist arrest so we went with them to the police station… We weren’t told about what charges we were facing until later on in the evening. We were asked to pay an admission of guilt fine and as a matter of principle, I was not prepared to admit guilt… the charges we were faced with were unfounded and trumped up,” says Mahere.
This meant spending the night in a filthy cell at the Harare Central Police Station. The tiny cell is cold and dark. There are no mattresses and blankets are infested with insects. The toilet is broken and water and urine floods the floor where some have to sleep, and no sanitary towels available.
“This is degrading to anyone. No one should be subjected to such conditions, even if you are held in cells pending trial. It was a long night. I am grateful I was in a group so there were moments of humour,” she says.
Mahere says, as unlawful as their arrest was, so are the bond notes. She says the term “bond note” is not defined anywhere in the Reserve Bank Act or the Banking Act.
“Bond note is not a term of conventional economics but an invention on the part of the Governor. It is clear that the law does not empower the Governor to create this, with respect, fictitious money,” says Mahere.
However, Patrick Chinamasa, Minister of Finance and Economic Development, argues, in a statement, that under existing legislation, the Reserve Bank of Zimbabwe has the power to issue bond notes.
“I need to highlight that under existing legislation the Reserve Bank of Zimbabwe has power to issue Bond Notes in terms of the provisions of Section 7 of the Reserve Bank of Zimbabwe Act Chapter (22:15). The Export Incentive Scheme could also have been introduced through Section 2 of the Exchange Control Act (Chapter 22:05) which empowers the President to make regulations relating directly or indirectly to exchange transactions and the control of imports into and exports from Zimbabwe, and payments,” says Chinamasa.
Mahere, however, argues that the Reserve Bank Act authorizes issuing Reserve Bank vouchers, not bond notes, when there is a shortage of currency of any denomination to pay civil servants or employees of the state.
“The shortage must be shown to require urgent action in the interests of public order or the economic interests of the state. The justification given by the Governor for the creation of bond notes is, therefore, inconsistent with section 42B of the Reserve Bank Act. The Governor’s justification for the curious move relates to foreign exchange stabilization and an unsatisfactory attempt to ease the cash crisis.”
“Within a few months, because we are such an import driven economy, when people are trying to replenish their stock, we will see what happens, we will see what our government does when it has the scope of printing money. We have seen that in 2008,” she says.
Mahere adds that her problem is not the bond note itself but the refusal by government to address issues at their root and attend to the fundamental causes to economic problems in Zimbabwe.
According to the Reserve Bank, the Retailers Association of Zimbabwe, fuel companies, representatives of the various business associations and the Consumer Council of Zimbabwe agreed on the use of bond notes as a medium of exchange in the country. Most traders are accepting the bond notes but worry about their future.
“I hope this will not be a repeat of 2008 where government will start printing money that is actually worthless. I have to buy my stock in South Africa because no company makes the hardware I sell here. I heard some petrol stations are already rejecting it,” says Clive Moyo, a cabinet and coffin handle trader.
The argument goes on. What is clear is people are buying and selling pieces of paper they aren’t sure about.