Zimbabwe’s new Finance Minister Mthuli Ncube may scrap the near money bond note and adopt the US dollar as the only currency for transaction in the country.
Ncube had always rooted for the South African Rand. However, in a recent article where he suggested actions that can put the Zimbabwean economy back on track, Ncube noted that while he’d prefer the rand, “things have moved on”.
“I was one of the people who were of the idea that Zimbabwe should adopt the Rand and join the Rand Monetary Union for a 7 to 10-year period. This is because South Africa accounts for 80 percent of Zimbabwe’s trade. So, clearly you want a currency that is linked to your largest trading partner. But I don’t think I want to argue that now because things have moved on and we are at a new juncture,” Ncube wrote, adding; “What I would argue now is that we remove the bond notes currency because it is becoming a surrogate currency to the Zimbabwean dollar without the macro economic credibility to support it. The bond note currency is bad money and we know that in economics, bad money drives out good money.”
“It’s not surprising that the US dollar is now in short supply because people are not banking them. So the immediate course of action is to remove the bond notes and then let the US dollar become the core currency,” the former African Development Bank chief economist noted.
He added that over time, the government would have to bring back the Zimbabwe domestic currency. “That’s what will deal with liquidity issues in a big way.”
Zimbabwe dumped its currency in favour of the U.S. dollar in 2009 following years of hyperinflation. It introduced bond notes in 2016 as a way of easing acute shortages of cash. The plan, however, failed, as shortages have worsened.
Currency black market has also thrived, with the notes pegged 1:1 to the dollar selling at $1 to 1.50 bond notes on the street. The notes are backed by dollars loaned to the Zimbabwean government by the African Export and Import Bank, and can be used like cash.
The Reserve Bank of Zimbabwe (RBZ) insists the bond note option has greatly assisted the economy, especially in boosting exports.