Letter from the village on BOND NOTES #BONDNOT

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Dear Halloween,

I HAVE absolutely no idea what you are all about. Having searched in some religious books with no success, I still have no idea how you came into being. Of course I heard that children on October 31 clad in strange customes moved from door-to-door soliciting for candies and other treats. They said it’s a tradition done in remembering the dead.
I have not really followed you and I’m sure, given your mysterious origins, you understand me.

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I’m looking in the skies anticipating some rains, but the skies are promising nothing soon. The radio has no news on the exact date we will receive the rains. All they say is that this season will be normal to above normal. That’s both calming and frightening. Low lying areas might experience floods, washing away whatever little that they have. However, the radio has some more news.

A few years ago we abandoned our very own currency because it was virtually useless. We adopted a multi-currency system in which the US dollar is the dominant currency. Despite stabilising the economy, restocking empty supermarket shelves and arresting inflation, the Reserve Bank governor John Mangudya says it was a mistake. He’s saying we have depleted our reserves in nostro accounts by spending what is supposed to be used to create wealth.

We don’t make the US dollar, but we use it on a daily basis. But given its attractiveness globally, it’s prone to externalisation, there goes his arguments.

To correct this, he suggested introducing what he’s calling “bond notes” which will be rated at par with, and will circulate alongside, the US dollar.

However, the bond notes, which will be issued as an incentive to exporters, will only be used within our borders.

I’m not an economist, so I have no idea how this works. But that’s what scares me and everyone else.

I heard someone called Gresham (whom I am think will be remembered on your day, Halloween) made comparisons between what he referred to as “good” money and “bad” money saying whenever good money is circulating alongside bad money, good money will disappear leaving only bad money in the economy. The governor is dispelling such fears saying the “bond notes” (which are kind of the bad money in this case) will be introduced gradually in the economy in such a way that they will not flood the economy. In addition, they are backed by a $200 million loan facility acquired from Afreximbank. Hence, Gresham’s law might not apply here. But we are not entirely convinced.

We are coming from a very bad past when our economy was dead. The memories are too depressing and distressing to even remember during Halloween. The trail of destruction left then is yet to fade.

The difficult past taught us that exchange rates are determined in the streets and on the parallel market. Monetary policies make pronouncements that last just for a few days if not hours. The rest is done illegally and informally.

The biggest fear is that the 1:1 rate that the governor is talking about might not last a week. The “good money” is going to be hoarded or extracted from the economy leaving only the bad money. That will then present an opportunity to illicit dealers who will “provide” the good money for a profit. This means the tilting of the exchange rate. We have travelled a similar road before. Mangudya is also aware of that, that’s why he issued a stern warning to would-be perpetrators. Whilst the warning was to serve as a deterrent, it effectively showed that the fears we have might be valid after all.

The fear of bond notes has already gripped the nation. In the past few weeks we have seen panic withdrawals, subdued deposits and acute cash shortages. Nobody is prepared for the return of the Zimbabwean dollar, not even to remember it during Halloween. The governor is at pains trying to explain that the bond notes are not the Zimbabwean dollar. But events that have unfolded recently suggest that even though bond notes and the Zimbabwean dollar might not share the same name and features, they might just perform the same on the market. That’s bad news to everyone.

As we are edging closer to the scheduled release date, I have already acquired my very own strange custome, ready to remember the dead. Ready to reinvent the wheel and the memories! Do we only remember the saints?

You know, the anticipation of death is much worse than death itself.

Regards,
The village economist
PS:
The governor said we can’t adopt the rand because we need to join the rand union or whatever, which requires us to have our own currency. But statistics say the rand constituted 49% of the money in circulation in 2009 even though we were not part of any rand union or whatever it is.

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