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!
As for what the bonds might eventually be worth, it is prudent to assume that they will be defaulted on. In that case, and taking other African sovereign defaults as a guide, one is left to conclude that the bonds in default would fetch 5-18¢ on the dollar. So, bond notes, which are products of Zimbabwe’s monetary mischief, are in a death spiral that will witness further significant declines in value. In that event, discounts on other elements of the New ZimDollar would also realize massive discounts. The NZD would become worthless, and with that, inflation would raise its ugly head.
Zimbabwe has once again engaged in a fraud on the public, creating a monetary mess and hardship.
We noted in June that the cash crisis continued unabated.
Those awaiting cash transfers at a bank may wait a month to be cleared and, even then, the transfer may be refused.
The Standard, Zimbabwe’s leading Sunday newspaper, ran an article at the time entitled, “Black market thrives, as banks run dry.”
Some highlights from that article:
HARARE’S Road Port has become the unofficial bank of last resort, never short of cash, no queues and a multicurrency platform. The money market at this busy bus terminus now plays the role that the formal banking sector has failed. It is effectively making a mockery of the Reserve Bank of Zimbabwe (RBZ).
This points to the nature of black markets. They thrive based upon fulfilling an existing need, not upon government control. They therefore replace whatever services the official market fails to provide.
“Top government officials, supermarket owners and service stations were behind the thriving black market, which is never short of cash.”
And now it appears many Zimbabweans have found an alternate way to store/transfer wealth away from Mugabe's prying (and confiscatory) eyes.
As CoinTelegraph reports, as the country appears to be headed toward another bout of hyperinflation,citizens are turning to dollars and Bitcoin.
The use of Bitcoin in Zimbabwe has grown exponentially as the government has begun to stop all credit card payments and has restricted the flow of cash into and out of the country.
People wishing to make payments for vehicles have been forced to use Bitcoin and car lenders are happy to accept.
This premium reflects a frantic desire to find ways to transact within an economy where government controls have made traditional means impossible.
As TechZim reports, as ‘hard currency’ disappears from the street, the demand for alternative payment options such as bitcoin will but increase, resulting in the rate increasing further.
Those that are using BTC as a means of sending money back to Zimbabwe will be excited with this rate, not only smiling all the way to the bank but back from it too...