Harare - In Zimbabwe, where worthless $100
trillion notes serve as reminders of the perils of
hyperinflation, President Robert Mugabe is printing a new
currency that jeopardises not just the economy but his own long
grip on power.
Six months ago, the 92-year-old announced plans to address
chronic cash shortages by supplementing the dwindling US dollars in circulation over the past seven years with 'bond
notes', a quasi-currency introduced this week.
According to the Reserve Bank of Zimbabwe (RBZ), the bond
notes will be officially interchangeable 1:1 with the US dollar and should ease the cash crunch. The central bank also
promised to keep a tight lid on issuance.
After a 2008 multi-billion percent inflationary meltdown
caused by rampant money-printing, many Zimbabweans are
skeptical. The plan has already caused a run on the banks as
Zimbabweans empty their accounts of hard currency.
Internal intelligence briefings seen by Reuters raise the
possibility that the bond notes, if they crash, could spell the
end of Mugabe's 36 years in charge.
A September 29 Central Intelligence Organisation (CIO) report
revealed the powerful army was as unhappy as the rest of the
population with the new notes and had told Africa's oldest
leader to "wake up and smell the coffee".
"Top security officers have told Mugabe not to blame them if
Rome starts to burn," the report said.
Reuters was unable to determine the author of the report. It
is also unclear if Mugabe has seen the report, whose final
audience is not specified. Mugabe's spokesman did not respond to
requests for comment, nor was the CIO available.
But the report offers a rare glimpse into the thinking of
Mugabe's security forces - the backbone of his power - and their
concerns about the implosion of what used to be one of Africa's
most promising economies.
"Mugabe was openly told that the bond notes are going to
cause his downfall," the report said.
Waiting for the drop
The notes' first test will come in the informal foreign
exchange markets on the streets of Harare.
If they fall heavily in value, they are likely to unleash an
inflationary spiral that could bleed the banking system of its
last few dollars and wipe out Zimbabweans' savings for the
second time in less than a decade, economists say.
The same happened in 2008: powerful individuals with access
to dollars at the official 1:1 rate were able to buy bond notes
at a discount on the unofficial market and then convert them
back to dollars at face value.
"You start with one dollar, then you've got 10, then you've
got 100, then you've got 1 000 - and it's not even lunchtime,"
said John Robertson, one of Zimbabwe's most respected private
economists.
In Harare's chaotic Road Port bus station, the main terminus
for those heading to and from South Africa, Zimbabwe's biggest
trading partner, some bus operators are fearing the worst.
Required to pay nearly all their expenses - fuel, road tolls
and police bribes in Zimbabwe and South Africa - in hard
currency cash, they are particularly exposed.
"It's like being on death row. You don't know when the
hangman is going to open your cell door," said ticket-seller
Simba Muchenje, pulling a wad of worthless 2008 Zimbabwe dollars
from his briefcase and tossing them onto the counter.
"It's just taking us back to the bad old days."
In interviews, none of eight money-changers trading South
African rand and US dollars said they would accept bond notes
at their $1 face value because of fears of immediate
depreciation. The rand and the US dollar have become
Zimbabwe's currencies since the local dollar was scrapped in
2009
"The banks may say 1:1, but here we say 2:1. We can't afford
to pay the same as the banks. I'm running a business, not a
bank," said Patience, a 32-year-old money-changer.
Reassuring words
Given Zimbabwe's recent history of hyperinflation, the RBZ
is keen to allay fears the printing presses are about to go into
overdrive, and that the bond notes are a roundabout route to a
new Zimbabwe dollar.
"The introduction of bond notes does not mark the return of
the Zimbabwe dollar through the back door," it said in a
statement on its website.
Instead, the bank has presented the notes as a 5 percent
"export incentive" - a top-up added by the central bank to the
accounts of those receiving foreign exchange either from
overseas remittances or via farming, manufacturing and mining
exports.
They will also be backed by a $200 million "loan facility"
from Afreximbank, a Cairo-based lender owned by the African
Development Bank and dozens of African governments and central
banks. Afreximbank declined to comment.
Given monthly exports of roughly $250 million, the 5 percent
'top-up' suggests a monthly liquidity injection of just $12.5
million, or $1 for every Zimbabwean.
In public statements, the RBZ has given assurances it will
not exceed the $200 million issuance ceiling.
But it has not clarified how bond note balances will be
recorded in U.S. dollar accounts, nor how ATMs will distinguish
between greenbacks and bond notes when they issue cash.
"Upon withdrawal, banks have an option to pay in any one of
the legal tenders," the RBZ said.
RBZ Governor John Mangudya missed a scheduled interview with
Reuters and did not respond to emailed questions.
No dollars, no fun
Few Zimbabweans interviewed believed the RBZ would stick to
the issuance limits, especially while a large current account
deficit continues to suck dollars out of the country.
After the bond notes' announcement, #ThisFlag and #Tajamuka,
social media campaigns targeting the new system, drew the
biggest anti-Mugabe protests in a decade before being crushed by
riot police and the CIO.
Meanwhile, tens of thousands across the country queue
through the night to empty their accounts the moment their pay
or pensions arrive, exacerbating the liquidity crunch.
Banks have responded with daily withdrawal limits: $100 one
day, $50 another, none another. Customers have no idea until the
banks open their doors at 8 a.m.
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"Sometimes you get to the end of the queue and there's no
money," said industrial fitter Edmund Panganai, 40, outside a
CABS building society branch in Harare. Every month, it takes
him at least seven nights of queuing to get his hands on his
pay.
In Harare, where most US dollar bills are stained deep
brown with grime, a crisp 2009-edition $100 note is now worth as
much as $115.
Conversely, the plastic and mobile money introduced to ease
physical cash shortages is depreciating, forcing vendors to
charge a 10-15 percent premium.
One prostitute, who had been relying on e-wallet payment
systems such as Ecocash, run by mobile firm Econet Wireless
, said she and other sex workers were turning away
customers without hard cash.
"Ecocash? No thank you. Dollars, dollars, dollars," said
Patience, a 22-year-old working a Harare street corner. "No
dollars, no fun."
Army rationed
Combined with unemployment at 90 percent and a government
budget crunch that has seen delays in payment of state wages,
the discontent is also pervading the army.
The September 29 CIO report said soldiers had applauded the
social media protests because they had led to an improvement in
daily rations.
"Before the demonstrations government had stopped supplying
them with breakfast. At lunch they were being fed with sadza
(maize meal) and cabbage without cooking oil. Mugabe instructed
for the army officers to be given descent meals so they
will rally behind him," the report said.
Other intelligence reports from late September and early
October suggested Mugabe was having doubts about the bond notes.
Reuters was unable to confirm this.
"The issue of the bond notes is giving Mugabe sleepless
nights," one said. "Mugabe is serious thinking of delaying
the introduction of the bond until January next year."
Another report said army officers were frustrated with pay
delays and withdrawal limits.
"They are very angry as they are failing to access their
money from the banks and do not want to be issued with bonds,"
it said.
"These junior and middle-ranked officers reckon that Mugabe
has failed, hence he needs to step down for new blood to replace
him."
Veterans at war
In July, veterans of the 1964-1979 liberation war that
brought Mugabe to power broke ranks, accusing him of
"dictatorial tendencies" and blaming him for the "serious
plight" of the economy and discord in the ruling ZANU-PF party.
"We are dedicated to stop this rot," they said in a
statement.
As fears over the bond notes have grown and the battle to
succeed Mugabe has intensified, they have continued to flex
their muscle.
"Once you go wrong with us, you automatically go wrong with
the whole state apparatus," veterans leader Chris Mutsvangwa
told Reuters.
The veterans enjoy warm ties with the army and security
services, and want Vice-President Emmerson Mnangagwa, a former
security chief nicknamed "The Crocodile", to take over from
Mugabe, political analysts say. On the other side is a faction
attached to Mugabe's 51-year-old wife, Grace.
Mugabe responded to the growing pressure on Nov. 19 with an
address in which he admitted fallibility and gave a rare hint at
retirement.
"If I am making mistakes, you should tell me. I will go," he
said, before adding: "Change should come in a proper way. If I
have to retire, let me retire properly."