The Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya on Wednesday defended the continual use of bond notes, arguing that the real cause of problems facing the country’s economy did not have anything to do with the surrogate currency, but rather was as a result of ballooning electronic balances, which are not backed by productive fundamentals.
State-owned The Herald has reported that Mangudya rejected the call from legislators that bond notes be scrapped as they “have failed,” accusing parliamentarians of lacking appreciation of real causes of the currency challenge.
At a 2019 pre-budget seminar in Bulawayo on Wednesday, Mangudya reminded the legislators that bond notes had to be introduced in 2016 under a $200 million AfreximBank-backed facility as a stop-gap measure to eliminate the then rampant cash hoarding and externalisation of foreign currency, mainly the United States dollar. The situation was compounded by the $1,35 billion RBZ (Debt Assumption) Act, which was approved by Parliament and signed into law in 2015.
As a result of financial and fiscal indiscipline in the economy, Zimbabwe has sunk into the web of an increasing money supply, spurred largely by the issuance of Treasury Bills, which has provoked inflationary pressures.
Dr Mangudya allegedly admitted that to date, Zimbabwe has registered close to $10 billion electronic balances at banks, which are not backed by real money.
“In that amount, only 4,5 per cent are coins and notes, which is your bond notes and coins,” he said. “Therefore, if we remove them they won’t resolve the problem. The problem is about the 95,5 per cent held as RTGS balances in your accounts. Where is it coming from?”
Dr Mangudya remained adamant that the bloated RTGS balances and not bond notes were causing inflation as they spike spending and pile pressure on little forex reserves.
“So, the question which we should be asking ourselves is where is this money coming from? That’s why we need to plug the holes, not from the medium of exchange that you have taken away from the bank. The money in your account didn’t come from bond notes, not at”, he said.
Also grilled on why the official exchange rate between the US dollar and bond note was at par at 1:1 despite parallel market variation, Dr Mangudya said: “The reason why we have got 1:1 is because there are essential products that we need to import in this economy to have price stability. Our fuel, which is coming here and people are buying it using RTGS, EcoCash whatever it is at 1:1. Your electricity today is imported at 1:1.”
Earlier in his address, Mangudya said Zimbabwe should forge ahead with measures that stimulate productivity to anchor growth.
“There is no economy in the world which can have a strong currency without a strong base.”
“Your currency is as good as your production, and what are you producing Zimbabweans?
“If you are producing nothing you can’t have a higher currency, which is very strong. Therefore, the challenge that you are facing of foreign currency shortages is because we are not working and we must start working very hard,” he said.