It’s official: cash is on sale in Zimbabwe. But not just any kind of cash — high-value denominations of the US dollar are the most sought-after notes on the market.

Cash-starved and desperate foreign investors are paying a premium for $50 and $100 notes. Black market dealers are paying a cool 15%-20% premium for crisp Benjamin Franklins and about 10%-15% for $50 notes.

This comes after central bank governor John Mangudya introduced bond notes to ease a cash crisis in November. The US dollar has become scarcer since then.

But how does it work?

Thanks to tight exchange-control regulations on foreign payments instituted by Mangudya last year, there is strong demand for high-value notes.

The lucky holder of a $100 note will get up to $120 from a dealer in smaller US dollar denominations, such as the $20, $10, $5, $2 and even $1 notes. The sought-after denominations are then sold at a slightly higher rate, and quickly find their way to various destinations around the world. The Financial Mail has established this from a number of cash dealers, who would not be named.

Smaller denominations make it tougher to move cash out of the country, while high-value ones can be smuggled out under the watch of unsuspecting authorities in small but valuable wads.

So far, no arrests have been made by the authorities, who have threatened to descend heavily on unscrupulous traders as trade booms in the capital.

Apart from dealers, other buyers want US dollars to preserve value amid inflation fears.

Mangudya last year said a total of $2bn had left the country illegally.

A traveller can take a limit of $1,000 and R20,000 out of the country at a time. Though daily cash withdrawal limits were reduced to $1,000 by the central bank, banks offer limits of as little as $20/day, and a maximum of $100 paid mostly through bond notes and coins.

Banks say deposits are also not forthcoming, as clients are holding on to cash. And heightened inflation fears have led people with healthy bank balances to move funds out of their banks.

Analysts say the withholding of deposits is part of a wider plan by Zimbabweans to preserve value and prevent a recurrence of 2007/2008, when balances were reduced to nought due to hyperinflation. The practice has been prevalent for a few months, banking executives told the Financial Mail on condition of anonymity.

Even the bond note is being traded by individuals seeking quick cash, with a rate of up to 10% for amounts under the 1,000 bond note. For amounts higher than the 1,000 bond note, individuals get charged as much as 15%-20%.

But bond notes, like the US dollar — the unit they are said to be equivalent to — are scarce in the market.

Analysts say Mangudya is playing it smart in a market that is betting on him to introduce an excess of bond notes. He claims the currency is backed by a $200m African Export-Import Bank bond facility, though the bank has not confirmed its existence. He said two weeks ago that $120m of bond notes had been released into circulation.

Mangudya’s predecessor at the central bank, Gideon Gono, is widely blamed for runaway inflation that eroded the value of savings in 2008 in a bid to prop up President Robert Mugabe’s rule through quasi-fiscal interventions.

Zimbabwe’s cash situation has hurt companies. Tiger Brands, which holds a 37% equity stake in the country’s largest miller and stock-feed producer, National Foods, struggled last year to get dividends due to it after banks’ nostro accounts ran dry.

A nostro account is a foreign currency account that a bank holds with another bank.

Only last week the central bank said it was finalising documentation to draw down on a $220m nostro stabilisation facility, which Mangudya said would ease a foreign payments backlog. He said Zimbabwe had $250m in nostro accounts, a paltry amount considering high imports into the country.

The country imported goods worth $5.2bn in 2016, compared with $2.8bn in exports.

The introduction of the facility comes at a time when banks have struggled to process foreign payments due to depleting nostros. As a result, companies have failed to pay for imported raw materials, thereby threatening industries.

The lucky holder of a $100 note will get up to $120 from a dealer in smaller US dollar denominations. The sought-after denominations are then sold at a slightly higher rate

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