While bond notes were put forward as a panacea to diminish the flight of wealth from Zimbabwe… (as Steve Hanke noted, it was not)…
The most recent attempt by the government to increase liquidity (the money supply, measured broadly) was the introduction of bond notes in November 2016. Incidentally, in conversations I had with Dr. Kupukile Mlambo, Deputy Governor of the RBZ, in May of 2016, I strongly opposed the introduction of bond notes, indicating that they were inconsistent with orthodox dollarization and would result in a complete disaster.
Although bond coins existed on a small scale since December 2014, the introduction of bond notes was significant. These notes were ‘backed’ by a $200m facility from the African Import Export Bank (Afreximbank) — a bank that some allege is unusually close to the Zimbabwean government. Among other things, it has still failed to publish official documents regarding the bond note facility. The uncertainty surrounding these bond notes has resulted in a black market for dollars, where the bond notes normally trade at discounts ranging from 5-15%. Not surprisingly, banks have attempted to remove these notes from their books, with bank officials reportedly engaging in black market deals for large cash sums at over 20% discounts!
This post was published at Zero Hedge on Sep 27, 2017.
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