Following the utter collapse of the Zimbabwean dollar in what has since become a textbook case of catastrophic currency failure, Zimbabwe was forced to adopt a multi-currency economy with a nine-currency basket in 2009. With the US dollar taking priority, so-called ‘dollarisation’ put an end to the ‘lost decade’ between 2000-2009 during which hyperinflation and economic meltdown halved Zimbabwean per capita incomes. There’s never a dull moment in Zimbabwe’s Treasury. Just a few years later, dollar liquidity started to dry up in the southern African nation with excessive external borrowing and importation bills taking precedence over fiscal consolidation and trade finance. Faced with a decline in GDP growth from 10.6% in 2012 to 0.6% in 2016, Zimbabwe’s monetary authorities rolled out their spin-off of the US dollar in November 2016: the bond note.

Underpinned and capped by a $200 million facility provided by the Cairo-based Afreximbank, the bond note is essentially a dollar-linked security which is valued on par with the dollar itself.  The notes, which come in denominations of $2 and $5, complement the existing bond coins put in place in late 2014. Its aim: to restore liquidity to a market where dollars are hidden under mattresses and banks are increasingly running short on supplies, ultimately paving the way for economic circulation and increased exports.

Understandably, average Zimbabweans have met the new pseudo-currency with skepticism — a skepticism which is reflected in the differential pricing for goods depending on whether they are paid for in USD or bond notes, with bond note-denominated goods costing a premium. Anecdotal accounts of discounts up to as much as 50% for goods paid for in Dollars showcase the lack of acceptance the Notes have received.

Those depositing dollars into their bank accounts are finding that withdrawals (which are capped at equivalent to $50 daily) come as a cocktail of bond notes, US dollars and whatever makes up the difference. With the Notes becoming increasingly scarce, the difference is often a sack of bond coins..

This last point is important because currency traders refuse to trade bond coins for US dollars and many apply the same principle to bond notes. In cases where the notes are accepted, they are more often than not far from on par with the dollar itself. This puts an immense strain on importers, and more critically manufacturers and exporters who need dollars to acquire basic inputs. For the average Zimbabwean this cocktail of circumstances has been met with a reluctance to deposit money in the first place and this has damaging effects on a country already illiquid. Beyond acting as an imperfect day-to-day currency within Zimbabwe, where most businesses already accepted a range of currencies, it is unclear how importers stand to gain.

However not everybody is disappointed with the bond notes. Noting that far less than the $160 million worth of bond notes officially in circulation are moving around the economy, the Reserve Bank of Zimbabwe (RBZ) has identified a small but significant bond note black market. At borders, Zimbabweans are being charged premiums of rand, pula, and so on to get their hands on the notes. In some cases, the notes are themselves being accepted as tender in border towns of foreign countries where locals seek to cash in on the supposed dollar parity.

There are also reports of black marketeers offering to convert entire Zimbabwean bank balances into Dollars or Bond Notes with a steep premium.

Although the RBZ has stepped up efforts to stem the illicit trade in bond notes at the border, the fact that they are becoming more and more difficult to obtain for Zimbabweans doesn’t bode well, regardless of their effectiveness as a pseudo-currency.

Recent statements indicate that the government has begun talks with Afreximbank as it approaches the end of its $200 million facility. Whether Zimbabwe secures a fresh tranche of bond notes or not will make little difference. What has changed in Zimbabwe over the last decade is the level of trust its people have in the government to run its economy. This ultimately spills over into unconventional money attitudes, such as the hoarding of foreign currency, and lowered economic confidence.

Indeed, some suggest the country should just adopt the South African rand given the volume of trade between them, yet with the rand taking a battering on international markets and the fact Zimbabwe would need to purchase rand with dollars, this is less viable than it seems.

This is unlikely to change anytime soon with the government increasingly crowding out private finance (domestic debt stands at around $4 billion or 42% domestic credit) and needing to service an external debt load of over $70 billion (more than 50% of Zimbabwe’s GDP).

Up until now, Zimbabwe’s government has largely shaped its initiatives around driving private sector growth, hoping it would carry the economy. It has done this through the introduction of local ownership laws, disastrous land policies and of course issuing of pseudo currencies.

In doing so, it has passed the buck, shirking its own responsibilities in the form of fiscal consolidation and transparent leadership — two things key to economic trust. Now, with the need to attract foreign investment and inspire confidence at home at an all time high, Zimbabwe could be faced with a decision it should have made long ago regarding tough policies and potentially a change in leadership.


About the author

CONNOR VASEY co-leads the proprietary research arm of Asoko Insight, and works as a freelance analyst focussing on developments in the African political economy.