Make bond notes tradable on forex market, leading economist urges Zim govt

HARARE,– A leading economics professor has urged Zimbabwe’s government to make its controversial bond note currency tradable on the foreign currency market to reduce its externalisation and tackle persistent cash shortages.

The bond notes, a quasi-currency introduced in November last year under a $200 million Afreximbank scheme to ease a crippling dollar note shortage, trades at par with the greenback but is legal tender only in the southern African country.

While the bond note has remained largely fungible against the US dollar in retail, there are fears that it could crash if allowed to float. The central bank has so far released $175 million worth of bond notes and is looking to print more.

University of Zimbabwe economics professor and government advisor Ashok Chakravati told a business breakfast on Tuesday that government should let the market decide the bond note’s true value.

“The problem with the bond note in my view is the peg with the US dollar, that is the main problem. We have a black market and what is happening is that anyone who wants to trade the bond note for a discount or premium, has to do it illegally on Fourth street or in Messina or at the Road Port or somewhere else,” Chakravati said.

“In my opinion government should remove the peg from the bond note, all that trading happening across the border will come back into Zimbabwe, why should it trade outside the country when you would like it over here.”

Chakravat said if the country manages to retain the surrogate currency within its borders, the cash crisis will improve.

“So all the bond notes will come back into Zimbabwe, there will be free trade, there will be a lot more cash within the system,” he added.

He applauded the central bank’ initiative to promote a legalized currency market through bureaux de change, but said it should allow a free exchange of the surrogate currency along with other currencies that circulate in the multicurrency system.

“So what we need to do is to legalize the system and create a market. The Reserve Bank has taken the first step already by trying to extend the bureaux de change,” ChakravatI said.

“I believe that with the Rand and bond note unpegged from the US dollar, we will be able to resolve the cash crisis.”

Chakravati has previously argued for the adoption of the South African Rand as the primary currency in Zimbabwe.

Zimbabwe abandoned its own hyperinflation-ravaged currency in 2009 in favour of the U.S. dollar, but a widening trade deficit, lack of foreign investment and a decline in remittances by Zimbabweans abroad have helped to fuel foreign currency shortages. – Source