The gradual introduction of bond notes in Zimbabwe

2017-03-02 09:17

The only reason the bond dollar has any value at the present is that it is issued within the context and background of a society full of people who have been assured by the respective authorities that bond notes and US dollars are equivalent.

The society has agreed to treat it as though it has value (at least for now). Without that faith, the bond note is as useful as small pieces of paper generally are. It is a false sense of security that the bond note is backed by facility at some bank elsewhere. US dollars, as well as the euro, yen, and every other major currency, is backed directly by the stability of the society that issues it.

The bond note following the same should be backed by the Zimbabwean society who issues it. The bond notes in a wallet with someone in Zimbabwe have value because, everybody thinks they have value. Bond notes will not be and will never be redeemable to any currency or commodity such as gold. 

If bond notes will not be redeemable to US dollars in this case will it cause any problems? The problem Zimbabwe is not stable as United States. The faith people have in bond notes cannot be forecasted to remain constant into future. The major reason is as bond notes are increasingly introduced into circulation it’s going to result in macro-economic stability thereby changing the current state of things. We should anticipate that people are likely to change their faith in bond notes. The motivation for us to predict such a scenario is Zimbabwe’s present economic instability.

Politicians are clueless to fix the current economic problems in Zimbabwe and only do one thing; create bond notes for more spending. The bond note acts as a “medium of exchange” and is only valuable because it can be exchanged for goods and services. It is one’s production that is the actual backing of the bond note, not the piece of paper itself or the said bank facility. The challenge with Zimbabwe the economy is not producing there is no production, local industry is dead and dysfunctional. The Reserve Bank of Zimbabwe recently introduced a $5 bond note in February a $10 and $20 note will follow soon.

The bond notes have not been flooded into the market but l believe the gradual introduction of these notes will still result in the same negative effects in the long-run, the drip feed of bond notes into the market only delays the inevitable chaos. Zimbabwe is currently facing severe foreign currency shortages more than other economies which are not dollarised as the multiple foreign currency regime spectacularly collapses.

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