Bond notes: The unanswered questions

Tichawana Nyahuma
Legal Matters

Reserve Bank Governor Dr John Mangudya announced on May 4 that the bank shall introduce, in the not-so-distant future, bond notes to augment the current family of bond coins.

I felt the governor didn’t fully explain himself because so many questions still remain unanswered.

To start with, the RBZ’s functions are defined in Section 6 of the Reserve Bank Act (Chapter 22:15). They include the following, among many others:

  1. To regulate Zimbabwe’s monetary system;
  2. To achieve and maintain the stability of the Zimbabwe dollar;
  3. To foster the liquidity, solvency, stability and proper functioning of Zimbabwe’s financial system;
  4. To advance the general economic policies of the Government;
  5. To supervise banking institutions and to promote the smooth operation of the payment system.

These functions are the closest to the situation under discussion. It is debatable whether what is intended to be done by the bank falls within the boundaries of Section 6 of the Act.

However, under Section 40 of the Act, the bank is empowered to “issue bank notes”. That section reads as follows: “Subject to Sub-Section 3, the bank shall have the sole right to make or cause to be made and to issue banknotes in Zimbabwe.”

Unfortunately, the definition of “bank note” in the Act is not helpful. It simply says: “Bank note includes any bank note which has been legal tender in Zimbabwe.”

This then casts doubts on the legality of the soon to come, bond notes because unlike the bearer cheques that came during the tenure of Dr Gideon Gono as the then governor, they were provided for under Section 42A of the Act.

So, to the extent that the bearer cheques carried with them an expiry date, they were not, in my view, “bank notes”. They were a stop-gap measure.

It seems to me “bank note” refers to actual money such as the retired Zimbabwean dollar and coin that is minted and issued by the bank and will bear no expiry date.

Other currencies such as the yuan, pula, the rand or US dollar are not bank notes in the sense that they are, firstly, not issued by our RBZ and, secondly, the President does not have the power to demonetise them as he can do with the Zimbabwean dollar, the bearer cheque or bond notes/coin.

With respect to the governor’s statement, it could have been handled better. Surely, the governor and his public relations department ought to have been more circumspect in how they disseminated such sensitive news.

Further, the governor said the bond notes would be “backed by a US$200 million Afreximbank facility”.

Did he mean that the bank borrowed or is going to borrow US$200 million which, instead of injecting into the economy, he is going to keep locked up in his vault and then print 200 million worth of bond notes since he said one bond note would be equivalent to one US dollar?

If the facility is a guarantee, at what stage is the guarantee to be called?

Are the bond notes redeemable willy-nilly or there must be something that must first ensue and what is that something?

How does a holder of the bond note redeem his US dollar if for some reason, he no longer wishes to hold onto the bond note?

Who are the agents for Afreximbank in Zimbabwe?

Is it the RBZ or other banks?

In as far as imports are concerned, what happens to someone intending to import a motor vehicle or go on holiday in a foreign country?

Does it not mean that, that person must first make an application to exchange control authorities to access foreign currency since bond notes will not be valid outside                                                             Zimbabwe?

When one considers that for a long time Zimbabwe has been a net importer, does it not mean when the bond notes start circulating, the US$200 million facility would be exhausted and we will, therefore, be left holding onto bond notes?

If the foreign exchange is not authorised for imports in an effort to preserve the US$200 million cache, will we not return to that dreaded situation that obtained in our country when shop shelves were empty?

With respect to deposits that will already be held by the bank at the introduction of bond notes, does it mean depositors have a choice to withdraw either bond notes or the US dollars since the original deposit was not part of the US$200 million-backed bond notes?

Or is the bank at liberty to dispense what it likes?

The governor also said that there was going to be a five percent incentive for exporters. It would be good if it is explained exactly how this is going to happen.

In any case, where will that five percent come from?

Will it be drawn from the US$200 million facility?

Who is paying that amount?

With respect to civil servants, how are they going to be paid, in US dollars or in bond notes?

The other measure taken by the bank was to implore retail outlets to install point-of-sale machines to encourage members of the public to use electronic transfers and plastic money and thereby relieve pressure on cash.

For that, the bank deserves applause. But then I wonder why Government departments are averse to using the same. I say so because the great majority of them and local authorities have not installed the requisite infrastructure.

As for small enterprises such as township grocery shops, how feasible is that option and what is being done to assist them to afford the infrastructure?

At the end of it all, it seems the measures being proposed by the governor are well meant. There is, however, need to properly educate the public on this important policy particularly in light of the nightmares that Zimbabweans have previously experienced in the past with respect to their money.

In the long run, until our industry is on its feet, foreign tourists come in their droves and until we are a net exporter, we shall continue to bleed money.

 

Tichawana Nyahuma is a lawyer and he writes in personal capacity. Feedback: [email protected]

 

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