Zimbabwe's Bond Notes.

Somebody asked me a good question: Why cant they just call it Zim $ instead of RTGS$? The answer is : the difference is one of degree not of kind. So the difference is the same. This sounds philosophical. Students of logic will perfectly understand me.

The RTGS $ is an electronic or virtual currency which cannot be printed at Fidelity Printers by the Reserve Bank of Zimbabwe. However the Bank can “print” the currency through borrowing from the financial market and capital markets by issuing Treasury Bills and Bonds, respectively.

This has the effect of increasing money supply growth (M3) and hence increasing liquidity in the economy. Both the RTGS $ and the generated liquidity are not backed by any production hence it can be inflationary. This is why the Minister of Finance is desperate to cut government spending and hopefully reduce the deficit and borrowing.

Unfortunately he cannot succeed because spending is the DNA of Zanu PF. Fiscal prudence is a stranger in government parlance. Whereas if government had introduced notes and coins by printing, in an environment of deficit spending, that would have resulted in seignorage revenue which is a feeding trough for inflation.

The reason why government prefers RTGS $ as opposed to physical ZW $ notes and coins is to avoid going to the printing press in Msasa which would invoke a sense of de ja vu regarding its inflationary consequences.

The other reason is that government is trying to avoid the physical stock of money preferring the electronic balances in order to avoid debauchery or currency attack.

The requisite fundamentals of returning to a sovereign currency are well known. So one may ask: What was the pressure for the re-engineered domestic currency? The answer is simple. Government has been battling with an exchange rate regime crisis. Clearly the official exchange rate taxonomy of 1:1 juxtaposed against the parallel market rate of 1usd: 4rtgs/bond was untenable as it created opportunities for arbitrage. There was pressure for gvt to float the currency and allow market forces to kick in. But the RBZ reaction was a case of too little too late. Instead of allowing the interbank market to freely determine the exchange rate, gvt is manipulating the exchange rate and fixing it at 1:2.5 which is ridiculous. It is a fixed not a floating peg. The fixed peg at 2.5 falls far short of the parallel market rate where the rate is truly floating. The paradox is that the official forex market is dry hence buyers cannot access forex at 2.5. This leaves traders with no option but buying and selling in the black market.

The South African Rand is trading at 1:14, The Zambian Kwacha at 1:10 and Nigerian Naira at 1: 355. This comparative analysis shows you that the rtgs remains highly overvalued.

So far, with due respect, Monetary policy statements have only managed to trigger price increases which hurt workers and the poor alike. The reason is that consumers speculate further devaluation of the rtgs dollar when in fact it is still overvalued by developing country standards.

The Reserve Bank has missed the tree for the forest. If government had intended to introduce a proper sovereign currency they had an opportunity to do it and allow it to freely float while addressing the fundamentals such as increasing productivity, building reserves and addressing the twin deficit.

What the economy needs right now is confidence. No fiscal or monetary statement will bring confidence to a divided nation. The main problem is politics. Leaders must seek genuine dialogue to arrest the economic meltdown. The economy and political reforms must top the agenda of dialogue. At the present moment the gvt remains clueless and running like a headless chicken. Monetary policy statements must be banned becaue they serve no purpose until Zimbabwe puts its act together before introducing a real physical and floated sovereign currency under the right fundamentals.

As it appears the attempt to mimmick the return of the Zim $ has been still born. However the fact remains that the rtgs$ is now the transactional currency and legal tender. To that extend it bears the basic tenets of money as a medium of exchange and a promisory note. These features make the RTGS $ dollar an electronic version of the Zim $ which is the equivalent to a domestic currency by any other name.

What the Reserve Bank has simply done is to clone the ZW $.

The best way would have been to re-dollarize but under the circustances it is impossible. Usd inflows are weak. Whether you look at exports, the capital account, flows from the diaspora and embassies – all these are not sufficient enough to populate the financial system with the greenback.


Dr Tapiwa Mashakada is a leading economist and former Minister of Economic Planning and Investment Promotion.