Zimbabwe’s central bank on Thursday vowed to introduce local bond notes at the end of October despite public concern, arguing the measure is necessary to ease a cash shortage and boost foreign exchange inflows into the economy.
The central bank proposed to pay an export bonus of up to 5 percent to exporters through bond notes in May in order to boost foreign currency inflows and address current cash shortages.
However, there is concern the introduction of the bond notes is an attempt by the government to bring back the moribund Zimbabwe dollar through the back door.
Opposition parties have in recent weeks staged protests against the introduction of the bond notes which are backed by a 200 million U.S. dollar African Export-Import Bank (Afreximbank) facility.
Presenting its 2016 mid-term monetary policy statement, Reserve Bank of Zimbabwe Governor John Mangudya said the bond notes, to be at par with the U.S. dollar, did not mark the return of the Zimbabwe dollar because macro-economic fundamentals for the return of the local currency were not yet right.
“The bank has heard and taken note of the public’s concerns, fear, anxiety and skepticism of bond notes,” Mangudya said.
“The bank is addressing the concerns by planning to introduce smaller denominations of bond notes of 2 U.S. dollars and 5 U.S. dollars,” he explained.
In addition, the bank would set up an independent board to have oversight role of the issuance of the bond notes in the economy, he added.
The central bank governor said bond notes equivalent to about 75 million U.S. dollars would be circulating in the economy by the end of December 2016, while the ceiling of the 200 million dollar Afreximbank facility would be attained when total exports reach 6 billion dollars.
“The bond notes will be gradually released into the economy in sympathy with export receipts through normal baking channels,” he said.
Zimbabwe abandoned its hyperinflation ravaged local currency in 2009 when the largest note was the 100 trillion denomination in favor of the U.S. dollar and eight other currencies that include the South African Rand, British Pound, Euro, Chinese Yuan, Japanese Yen and Australian dollar.
However, the U.S. dollar has become the main circulating currency and it too has become scarce, with the government blaming externalization and low exports for the shortage of the greenback. This report by Xinhua