Monday, November 28, 2016

Unease as Zimbabwe rolls out 'surrogate' dollars

Illegal money changers having a feel of the new bond note in the capital Harare, Zimbabwe. Photo by: Philimon Bulawayo/ REUTERS

Zimbabwe on Monday started issuing "bond notes", its own currency equivalent to the US dollar, in a bid to ease critical cash shortages, but the move sparked fears of a return to hyperinflation.
The crisis-hit southern African country has used multiple foreign currencies, including the greenback, since 2009 after a rate of inflation that peaked at 500 billion percent rendered the Zimbabwe dollar unusable.

The introduction of $2 and $5 bond notes into circulation follows the issuing of bond coins over a year ago to ease shortages of change in smaller denominations.

The country has experienced a severe shortage of US dollar banknotes in recent months which prompted President Robert Mugabe's government to print what locals have dubbed "surrogate money".

"The government is only treating the symptoms without attending to the problems and it's not going to solve anything," Antony Hawkins, an economist at the University of Zimbabwe's Business School, told AFP.

"The problem is we are not earning enough foreign currency and bond notes are not going to solve that. It will make the situation worse.

"There is a saying in economic that says 'bad money drives away good money', and that is what's going to happen."

The central bank has launched a media advertising blitz trying to allay people's fears, saying retailers and businesses have agreed to accept the bond notes.

But the illiquid Zimbabweans say they have no choice but to accept the pseudo currency.

"We had no solution. We were caught between a rock and a hard place. This is a good stop-gap measure. Let's embrace it," Timothy Salimu, a former bank manager told AFP outside the banking hall in the capital.

Yet "for people needing money to do business outside this will present challenges," he added, "but it's too early to cry."

But even as Lovemore Chitongo, 40, a curbside shoe salesman, accepted payments in bond notes and coins on Monday morning, he remained skeptical.

"We are expecting little change," he told AFP.

"There is no way the bond note will be equal to the US dollar. The market will determine the exchange rate."

Chitongo himself was charging $20 per pair of shoes -- but $25 in bond notes. He would use the difference to buy cash on the black market, he said.

The introduction of bond notes stoked fears of gas shortages over the past week and queues surfaced at some fuel stations.

The government sought to calm panicking drivers, saying the country has enough fuel stocks.

"We wish to assure the nation that there is no basis for alleging that the country will go dry in terms of fuel supply," it said in a statement at the weekend.

Depositors would be limited to a maximum withdrawal of $150 a week.

The 2009 switch to foreign currencies saw relative economic stability before the economy began to falter again as government policies deterred investors.

The economic decline has worsened in recent months with banks running short of cash and desperate depositors sleeping overnight outside branches to be sure of accessing their money.

Those businesses that have weathered Zimbabwe's successive economic storms are grinding to a halt as the government repeatedly fails to pay soldiers and civil servants on time.

The introduction of bond notes has also stirred anger that has erupted into street protests.

In the past fortnight several activists were beaten up and arrested ahead of a planned street protest to oppose the introduction of the notes.

The government said the new notes will be backed by a $200 million support facility provided by the Cairo-based Afreximbank (Africa Export-Import Bank).

AFP

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