When the Reserve Bank of Zimbabwe (RBZ) in May last year announced plans to launch bond notes with a value on par with the US dollar, the news made headlines. It had never been done elsewhere.

It also aroused suspicion.

Lingering fears of the return of the devalued Zimbabwe dollar had been dismissed by the central bank on many occasions after it adopted the US dollar. But a liquidity crisis has affected the recovery initiated by the dollarisation of the economy.

Zimbabwe abandoned its currency in 2009 after hyperinflation destroyed its value. In 2014, RBZ chief John Mangudya introduced bond coins to Zimbabwe, backed by a US$50m African Export-Import Bank (Afreximbank) facility. The coins were grudgingly accepted as a means of trade.

But biting shortages of US dollars have created the need for an alternative to the coins, and Mangudya believes bond notes could address the problem.

The value of the new currency would be derived from a $200m Afreximbank bond facility, Mangudya said in May 2016.

Questions quickly arose about the $200m facility.

Before Zimbabwe released bond coins in 2014, Afreximbank announced on its website that it would back the coins. In contrast, by September 2016, there was still no official confirmation that the bank would make the $200m facility for the bond notes available.

The debate quickly spilled into the public domain.

In December, Ecobank economist Gaimin Nonyane questioned the existence of the facility. "We understand that while Afreximbank is supporting trade within the gold industry, [it has] not committed to backing the bond note programme directly," he said.

"In reality, the central bank has just printed a new currency in the hopes that this will ease liquidity pressures, but I doubt this will have the desired effect."

No go: Opposition parties demonstrated againt the introduction of bond notes as currency. Picture: JEKESAI NJIKIZANA/AFP/GETTY IMAGES
No go: Opposition parties demonstrated againt the introduction of bond notes as currency. Picture: JEKESAI NJIKIZANA/AFP/GETTY IMAGES

Fed up by what he described as a wall of silence, businessman Frederick Mutanda asked the high court to bar the introduction of the bond notes, but the court dismissed the challenge. His lawyer, David Drury, attempted to get an explanation from the central bank, but it failed to provide him with proof of the existence of the bond facility.

"[Zimbabwean President Robert] Mugabe will leave the country with worthless bond notes ... The RBZ governor has always known that there is no Afreximbank facility. It has always been a lie. That is why I went to court," Mutanda tells the Financial Mail.

Mutanda’s legal challenge is not the only form of public opposition to the bond notes.

Economist Ken Yamamoto believes the bond notes are a calculated robbery of Zimbabwe’s hard-earned currency. He has labelled the alleged facility a "scam".

But University of Zimbabwe economics professor Ashok Chakravarti says the existence (or nonexistence) of the bond notes facility is water under the bridge.

"I think the question is not whether or not the bond notes facility exists. In my opinion, it can be funded in other ways, including by nostro accounts," he says, referring to accounts that a bank holds in a foreign currency in another bank.

"If the quantity of bond notes in circulation is maintained, then the bond notes could actually hold value against the US dollar. If they increase the amount of bonds in circulation, then we could see problems with the value," says Chakravarti.

He adds that a good quality tobacco crop — which is likely, thanks to good rainfall — will help Zimbabwe’s cash flow. A good maize harvest is also expected this year.

But most citizens regard the bond notes to be the Zimbabwe dollar by some other name.

Drury says, in the absence of a bond facility, the bond notes have no value.

"In any economy, a currency is backed by some commodity. In our case, it seems to me there is no exchange instrument to back the bond notes. We don’t have the backing of the RBZ either," he says.

Some commentators suggest the bond notes are an attempt to rob Zimbabweans of their cash.

It’s happened before. At the height of economic decline in 2008, then RBZ boss Gideon Gono helped himself to $400m held in foreign currency accounts in the country, allegedly to finance Mugabe’s government operations. He was forced to reimburse these funds by issuing treasury bills.

Yamamoto says a court ordered Standard Chartered Bank to pay back a Chinese company for foreign currency stolen by the RBZ.

But independent economist John Robertson agrees with Chakravarti, saying the existence of the facility is now irrelevant.

"The bond note is not holding its value against the US dollar as we speak. It is going to continue declining," Robertson says.

"Right now, the scarcity of the US dollar has worsened since the introduction of bond notes. The effect of the notes has been one of pushing US dollars out of circulation."

In the months before the announcement, Mangudya had pushed for the use of electronic payment systems and card usage.

To date, Afreximbank has not confirmed its backing of the bond notes. Afreximbank regional manager for Southern Africa, Gift Simwaka, has previously declined to comment on the facility. This week the bank referred questions to the RBZ.

Efforts by Drury to secure a copy of the facility have come to naught.

The International Monetary Fund (IMF) has also professed ignorance of the existence of the $200m facility.

"I don’t have any information on the Afreximbank loan," IMF communications officer Andrew Kanyegirire said at an IMF press briefing last year.

Meanwhile, Yamamoto believes the RBZ wants to print bond notes that exceed $200m. "In his own words, from his monetary policy pronouncement, Mangudya says that the ceiling of the $200m Afreximbank facility would be attained when total exports reach $6bn," Yamamoto says.

But he believes that with Zimbabwe’s 5% incentive for importers, government will need at least $300m in bond notes.

In spite of promises to set up a committee to monitor the circulation of bond notes, Mangudya has not  yet made the  appointments.

To date, no-one — aside from the RBZ presumably — knows exactly what value of bond notes has been printed. And, in the absence of proof from the RBZ, questions about the legitimacy of the credit facility to back up the notes have continued.

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