Zimbabwe’s new “bond notes” are falling fast

HOW much is an American dollar worth? The glib answer is exactly one buck. But that is far from the case if the dollar in question is one of Zimbabwe’s “bond notes”, the world’s newest currency that is not officially a currency.

Zimbabwe adopted the US dollar as its official currency after the spendthrift regime of President Robert Mugabe printed so much of its own currency that it caused hyperinflation in 2008. The economy briefly stabilised; but old habits die hard. Last year the government again spent far more money than it raised, much of it on imports, causing scarce greenbacks to flow out of the country.

By the end of the year there were so few dollars still circulating that banks were limiting withdrawals to $50 a day, crippling the economy. In turn the central bank decided to issue a new currency, called “bond notes”, pegged to the US dollar and ostensibly backed by some $200m in actual dollars held in reserve. Shortly after the new notes were introduced many in Zimbabwe cheered their release, since they could withdraw cash from banks again and the notes seemed to be holding their value.

But two months on, the new notes, nicknamed “bollars”, are rapidly losing their value. People have discovered that they are not, in fact, convertible into real dollars. So they cannot be used to pay for imports—a real problem in a country that does not make much. Shops accepting bond notes can use them to pay local wages and suppliers or deposit them in their local bank accounts (which are still denominated in US dollars). But if they want to pay for imports to restock their shelves, they still have to queue for real dollars.

So desperate are shops for hard currency that they are offering discounts of as much as 50% to customers who hand over greenbacks. Some petrol stations now have separate pumps where the price of fuel is lower for customers who pay with hard currency cash instead of using a debit card. A number of shops in Harare have resorted to indicating two or three different prices for the same item—a US dollar cash price, a bond note price and a third price if one pays using a debit card.

Black marketeers have been quick to help out. Some are offering to convert bank balances into real dollars at premiums ranging from 5% to 30%. Among the buyers they sell to are travellers going abroad, who need to apply for permission to use their cards outside the country.

The big supermarket chains are not allowed to offer cash discounts or discriminate against customers who use bond notes or electronic cards. Instead they have simply raised their prices, particularly of imported goods. Even prices of local produce have also gone up significantly since December. A steak cut that would have sold for $8 per kilo last year now costs $13. A two-litre bottle of Zimgold, a local vegetable oil, which retailed in November for just under $3, is now marked at $3.55.

With consumer prices surging, the bond notes are proving to be exactly what many Zimbabweans feared they might be: the resurrected “Frankenstein” of their dead cousin, the Zimbabwe dollar, which burned itself out almost a decade ago. Unless the country changes tack, more economic misery looms. – The Economist