Home LOCAL NEWS BOND NOTES VALUE TAKES NOSEDIVE, INFLATION RATE EXPECTED TO SOAR

BOND NOTES VALUE TAKES NOSEDIVE, INFLATION RATE EXPECTED TO SOAR

BOND NOTES VALUE TAKES NOSEDIVE, INFLATION RATE EXPECTED TO SOAR

BOND NOTES VALUE TAKES NOSEDIVE, INFLATION RATE EXPECTED TO SOAR | Introduced in November last year as part of measures meant to address the liquidity crisis, bond notes have fallen sharply in their value, stirring a wave of massive price increases, especially of basic goods.

BOND NOTES VALUE TAKES NOSEDIVE, INFLATION RATE EXPECTED TO SOAR

Reports that the high demand for foreign currencies required to effect payments for goods and services sourced externally has seen the value of bond notes declining by as much as 50 percent on the currency black market.

Though illegal, Zimbabwe operates a three-tier pricing system, which dominates domestic transactions.

This is where a buyer is charged different prices depending on the mode of payment used.

For instance, it is cheaper to pay using hard currencies, while a heavy premium is paid on transactions effected through electronic transfers (including swipe) and bond notes.

Owing to the liquidity crunch affecting banks, the bulk of transactions are now going through currency dealers operating on the parallel market.

Because Zimbabwe imports more than it exports, the black market is now influencing pricing trends.

As such, a transfer now attracts a 48 percent premium, while cash transactions for smaller denominations range between eight and 9,5 percent, depending on the currency involved.

Because Zimbabwe imports more than it exports, the black market is now influencing pricing trends.

As such, a transfer now attracts a 48 percent premium, while cash transactions for smaller denominations range between eight and 9,5 percent, depending on the currency involved.Zimbabwe is currently in the grips of a serious economic crisis, which has resulted in severe cash shortages and disappearance of US dollars from the formal market.

This comes at a time when the country is experiencing acute cash crisis due to a burgeoning government expenditure, huge import bill and alleged illicit financial inflows among other things.

Long-suffering Zimbabweans are now being forced to accept huge sackfuls of coins from their banks and mobile money agents as bond notes vanish from the local market on the back of currency dealers who are either hoarding them for speculative purposes or taking the surrogate currency into the black market.

Analysts have said Zimbabwe needs to increase its production to earn more foreign currency.

Businesses and a larger section of society have been pushing for the adoption of the South African rand to save the country from plunging further into an economic crisis.

President Robert Mugabe also backed Zimbabwe’s greater use of the South African currency when he spoke in an interview with the ZBC to mark his 93rd birthday early this year.

The Zanu PF leader also said bonds notes were a temporary measure to mitigate cash shortages in the country.

“Bond notes are just a temporary thing. We want you to bear with us. We want you to bear with us. We wanted to adopt them for a short period,” he said then.

Former Finance minister, Tendai Biti, making a presentation at Sapes Trust last week, said that he will be taking part in a court application pertaining to the US dollar-bond note parity.

“Various exchange rates are in the market against a background of a set exchange rate of 1:1 against the United States Dollar set out in the RBZ Act…Biti said the issue of stolen value of money through the bond notes will soon spill into the courts in a case that he is also involved.

“The bond notes have also caused distortions in the market driving inflation upwards, more importantly the bond notes have driven away the remaining forex which was in circulation,” Biti’s party, the Peoples Democratic Party (PDP), said in a statement.

Zimbabwe introduced the bond notes at the end of last year as an incentive to exporters and short term measure to stabilise the market.

The notes were meant to circulate along with a basket of other currencies such as the South African rand, the US dollar and the British pound.

These other currencies were the first to thin out because of a liquidity crisis caused by the country’s failure to produce enough for export to meet its foreign currency requirement.

This has been worsened by the externalisation of foreign currency, lack of balance of payments support and government’s appetite to spend beyond its revenue-generating capacity.

Officials in the banking sector have confirmed that the bond notes were now being found beyond the country’s borders.

This comes as the RBZ is aiming to introduce $300 million worth of bond notes under a fresh arrangement with the Africa Export Import Bank, which would bring the total value of bond notes in circulation to $500 million, following a similar arrangement last year, worth $200 million.

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