Closing the bond notes debate

Closing the bond notes debate
Published: 04 August 2017
The bond notes had managed, against dire predictions, to hold their own. But those opposed to the introduction of a local currency haven't relented in their efforts to junk the bond note. They are determined to see it fail, and Mangudya staked his reputation on its success. That demands he tread cautiously on how many bond notes he is being tempted/goaded to inject in the market.

WE want to start the Spectrum with a long detour today, before we close the debate. We believe the detour is an important one. We have all fallen in love with our bond notes, and treasure American dollars.

So, hopefully Brother John has a rabbit in his hat this time around. Amid a clamour about a shortage of foreign currency, Reserve Bank governor John Mangudya released his mid-term monetary policy statement of Wednesday this week in which he said people travelling out of Zimbabwe can now take as much as US$2 000.

The good governor also announced a policy intervention to ease an inexplicable generalised shortage of cash, including bond notes. He said $300 million in mint bond notes would be injected into the system; without a full explanation of what is happening to bond notes so far issued under an Afreximbank US$200 million facility. (Wherever it might be, he blamed it on indiscipline in the market).

In May 2016 Dr Mangudya surprised many Zimbabweans with a generous offer to tobacco farmers. Back then we didn't have bond notes. The American dollar was the dominant currency. It was already in short supply as people stored it in their homes or traded it on the black market as a commodity. Mangudya declared then that tobacco farmers must be treated as corporate clients, thus be able to withdraw US$10 000 per day, every day.

We wondered back then whether such a largesse would not tempt a church pastor to join the tobacco trade! Now he says we can all take out US$2 000, no questions asked. Without saying where those US dollars are stored. But still that's only a small part of the puzzle.

We have defended the introduction of bond notes in the Spectrum from the time they were mooted out of a conviction that ultimately Zimbabwe needs its own currency. They were proposed last year as an incentive for exporters. They were meant to stimulate local production, whether it be industry or tobacco farmers. In this they were in sync with Statutory Instrument 64 of June 2016 which sought to limit imports only to essentials.

The challenge now seems to be that the RBZ is moving with the popular tide about easing "cash shortage" rather than implementing an incentives policy for exporters.

Top among the many causes of foreign currency shortage is that Zimbabwe is not producing enough; not exporting enough. We export more dialogue between the RBZ and industry about the impact of these incentives. Are they bringing out the desired result or is the issue now about dealing with bank queues?

We ask these questions deliberately. People should justify why they need to take out US$2 000. We doubt if most such people are its major earners – the tobacco farmers, in which case it would be explained as a further incentive for them to generate more next season.

Second, we can't claim to promote local production while allowing everyone to take out US$2 000 to bring in whatever they want, mostly for resale. Except in critical cases, this can be used to incentivise the import of second hand goods, including clothes and clothing materials while on the other hand Government is trying to boost cotton production under its Command Agriculture programme.

Third, Dr Mangudya needs to give a researched explanation on the shortage of cash. So far it's speculation about bond notes being found in neighbouring countries but little about what they are used for.

One of the reasons the bond notes were introduced was that US dollars were easy to externalise. Now we are told non-convertible bond notes, so-called bad money by cynics, are also being externalised. What exactly is the story?

Market indiscipline

Related to it is Dr Mangudya's complaint about indiscipline in the market. He said much of the cash was in the informal sector and the parallel market.

One would expect a strong message about how that is being addressed. Why is there so much cash in the informal sector yet banks keep people waiting in queues to get a paltry amount? This is in fact forcing many honest people to join the bandwagon, thereby losing money through arbitrage by those selling cash at Roadport bus terminus and Copacabana flea market.

The point we are making is that by failing to address robustly what he describes as market indiscipline, Mangudya risks a credibility crisis even about "drip-feeding" the market on bond notes. Without closing the deep, dark hole where the cash is going, we might soon face a deluge of notes, regardless of the denominations.

This is because there now appears to be a subtly but unexplained shift from bonds notes as an incentive for exporters to an attempt to use them to bridge a cash shortage in general by injecting more notes but without a concomitant determination to deal with the said market indiscipline.

The risk is that money is captured on the black market, and the more the Reserve Bank seems to oblige by supplying more, the greater the incentive and appetite to devalue the bond note against the US dollar.

It is a dangerous cycle which should be broken. Otherwise the bond notes had managed, against dire predictions, to hold their own. But those opposed to the introduction of a local currency haven't relented in their efforts to junk the bond note. They are determined to see it fail, and Mangudya staked his reputation on its success. That demands he tread cautiously on how many bond notes he is being tempted/goaded to inject in the market.

From $175 million at the beginning of July this year to $500 million in a short space of time is a huge leap by any measure. Especially when the goal is to promote electronic transactions over cash.

An inane debate

Passage of Constitutional Amendment Bill (Number One) both in the National Assembly and Senate has put an end to an inane debate and illogical logic. Zanu-PF won the mandatory two thirds by two votes at 182. The opposition got 41 after putting up a determined fight. The Bill now awaits Presidential assent.

The Bill seeks to confer on the national President powers to appoint the Chief Justice, his deputy and judge president without subjecting them to open, public interviews.

I wouldn't have cared one way or the other how the voting turned out. But then the opposition and its civic society cousins never put up winning arguments.

The first was that it was too early to emend a Constitution adopted only four years ago in a popular referendum vote. Do we tolerate a malady simply because it is fresh?

The second was that because the Constitution was voted for in a multiparty referendum it represented the will of the people – that senior judges are subjected to a public spectacle by their juniors. The implication being that voters had the option to tick off what they wanted or didn't want. There was never such multiple choice. Worse, nothing supports the assumption that those who voted had seen the draft, let alone read it. To this day, the translations into local languages haven't reached a majority of the people. Few know what is in that document.

Third was the inanely political argument that the amendment would give President Mugabe powers to appoint the said senior judges. The truth is the amendment was initiated by Zanu-PF but applies beyond Zanu-PF and President Mugabe. The powers to appoint a Chief Justice, his deputy and judge president are conferred on the President of the Republic, not a political party or its leader. It's that simple.

The jewel in this is that every leader wants around him people with whom he has a harmonious working relationship to execute policy according to a mandate derived from the people. The law must serve the ends of greatest justice. It's not about showmanship in the name of independence. Nobody is value-neutral.

Finally, there was an insinuation that a judge appointed by the President has no reputation to protect, and therefore easily influenced to make the most inane legal rulings. And fellow learned colleagues allow it to pass?

Some esoteric jurisprudential reasoning indeed! Except the debate and voting itself exposed undesirable partisanship.
- chronicle
Tags: Bondnotes,

Comments

Latest News

Latest Published Reports

Latest jobs