A return to the old?

A Zimbabwean street vendor sorts coins in front of a bank in Harare. Reserve Bank of Zimbabwe governor, John Mangudya, introduced the new "bond coins" in December 2014. They are named after a $50-million bond that was floated to mint and import them from neighbouring South Africa. The new coins have the same denominations and value as US cents but can only be used in Zimbabwe.

A Zimbabwean street vendor sorts coins in front of a bank in Harare. Reserve Bank of Zimbabwe governor, John Mangudya, introduced the new "bond coins" in December 2014. They are named after a $50-million bond that was floated to mint and import them from neighbouring South Africa. The new coins have the same denominations and value as US cents but can only be used in Zimbabwe.

Published May 10, 2016

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We thought we had seen the last of Zimbabwe’s fantastic Monopoly money in 2008 when the country’s Reserve Bank was printing notes of up to ten trillion Zimbabwe dollars face value each. That was to try to keep the presses up to speed with plummeting devaluation and galloping inflation that was running into billions of percent.

It was the last gasp of the Zimbabwe dollar before it collapsed completely and the country converted to the US dollar, mainly, as well as the South African rand, the Botswana pula and a few other currencies thrown in for good measure.

That change – plus the advent of more sensible economic policies brought in by the opposition Movement for Democratic Change when it became part of the government of national unity which took office in 2009 – helped to stabilise the economy after a fashion.

But since President Robert Mugabe’s Zanu-PF returned to sole power after the 2013 elections, Zimbabwe’s economy has been rapidly going back to Cloud Cuckoo Land, economically.

With virtually nothing to export and rising imports, the country has run up a trade deficit of $3 billion (R44.9bn) and has almost run out of US dollars to pay for it. Meanwhile Zimbabweans shunned the rand, not only because it has been falling against the US dollar but because Zimbabweans – certainly at government level – so badly resent their more successful southern neighbour.

Last year, the Reserve Bank issued “bond coins” in US cent denominations so shops could stop giving change in lollipops and the like. Then last week, Reserve Bank Governor, John Mangudya, took the logical next step when he announced that his bank would issue special “bond notes” , in denominations of $2, $5, $10 and $20 – at par with the US dollar, to try to ease the cash crisis.

He insisted that this was not new currency – ie that he was not reintroducing the Zimbabwe dollar via the back door.

But few economists, other commentators or indeed the Zimbabwean public seem to believe him. They believe this is a return to the old game of Monopoly, allowing the Reserve Bank once again simply to print as much money as it needs to pay the country’s bills.

Tendai Biti, who was then in the Movement for Democratic Change (MDC) and served as finance minister during the unity government from 2009 to 2013, said the recourse to bond notes was indeed a return to the Zimbabwe dollar – and was thereby a “gross admission by the regime that it has failed” – and was now dragging the whole country over the abyss.

Tapiwa Mashakada, the MDC’s shadow finance minister, said it was “crystal clear that the government is warming the printing presses….History repeats itself”.

Economist Russell Lamberti, who-co-authored a book on the crash of the Zimbabwe dollar, told the Daily Maverick that it seemed Zimbabwe was once again “creating money from thin air”.

He thought there was almost no chance of the new bond notes holding their value, because they were not backed by anything real.

Bank customers are equally sceptical, rushing to withdraw their real US dollars to hide them under the mattress. The banks have anticipated this by reducing US dollar withdrawals to a tenth of what they allowed in January.

Veteran economist, John Robertson, last week predicted the new bond notes would precipitate a rush on the banks which could destroy them.

Some are trying to defend Mangudya, insisting he is not the pliable tool in Mugabe’s hands which his predecessor, Gideon Gono, was in the last days of the Zim dollar and so will refuse to obey Mugabe’s orders to print limitless bond notes.

They point out that he has promised to print only $200m worth of the new bond notes, and that all of these are backed by the Cairo-based African Import Export Bank.

But surely $200m will not be enough to pay for imports? Unless the government introduces drastic import controls, which it has so far shown itself unwilling to do.

And so, what will Mangudya do when the $200m runs out as it surely must soon? Zimbabwe’s economic problem is obviously not essentially a shortage of physical notes; it is the lack of exportable produce that can earn hard currency to pay for imports.

And that’s because of Zanu-PF’s recklessness in spending money it never had or blithely destroying the export resources it did have; starting with the huge extra-budgetary pension payouts to war veterans and the costly military intervention in the Democratic Republic of Congo in 1998 through to the seizure of almost all the land from productive white farmers starting in 2000.

It will be difficult for Mangudya to resist the temptation to keep the printing presses running.

Or this may be the moment when Zanu-PF finally has to swallow its pride and do what it should have done from Day One – join the rand monetary area. Mangudya already hinted at that possibility when he said last week that from May 5, 40% of all new US dollar receipts would be converted to rands.

If Mugabe doesn’t do this, he might just precipitate the long overdue death throes of his regime as unpaid securocrats, until now kept sweet by the dregs in the coffers, finally turn on him.

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