The collapse of Zimbabwe’s bond notes took longer than anyone expected.
Introduced in November last year, the bond notes — pegged at 1:1 with the United States dollar and backed by a murky credit facility from the African Export-Import Bank — were widely predicted to fail within the first few months of their existence.
Zimbabweans, it was thought, would flock instead to the relative safety of the US dollar, subjecting the new bond notes to the same hyperinflation that killed off the old Zimbabwean dollar.
It didn’t quite happen that way. Ironically, the sheer scale of the cash shortage — a shortage engineered by years of financial mismanagement — prolonged the lifespan of the bond notes. As one tomato vendor, at a market in Harare’s Chisipite suburb, said in January: “We don’t like these bond notes, but sometimes we have no other way to pay for things. So we have to use them.”
But even necessity couldn’t save the bond notes forever. Earlier this month, amid reports that the government was planning to flood the economy with another $300-million of the pseudo-currency, Zimbabweans who could afford to began exchanging their bond notes for US dollars, precipitating a dramatic decrease in the value of bond notes. On the black market, one US$1 is now going for up to $1.50 in bond notes, making a mockery of the official rate. Many businesses (including blue chips such as MultiChoice, small-scale tuck shops and even schools) are refusing payment in bond notes.
For civil servants and others paid in bond notes, this depreciation has cut their spending power by a third. The prospect of even further depreciation has forced some shoppers to hoard tinned goods and staples while they are still affordable, even though the price of basics has been rising too.
In a desperate bid to quell the panic, the government claims that nothing is wrong — and is arresting people who argue to the contrary. The current crisis was engineered by “irresponsible social media messages”, said Reserve Bank governor John Mangudya, the chief architect of the bond notes, and activist pastor Evan Mawarire was arrested and charged with attempting to “incite people of Zimbabwe to revolt against the constitutionally elected government of Zimbabwe”.
Mawarire, subsequently released on a technicality, had posted a video online in which he criticised the government’s handling of the economy and compared the current situation with the collapse of the Zimbabwean dollar in 2008. “Things in Zimbabwe have become very urgent,” Mawarire said, the video panning over the long queues outside petrol stations. “We have begun to experience what we experienced in 2008. The shortages have begun to happen.”
Mawarire is not alone in fearing a repeat of the economy’s darkest days.
“Money is a question of confidence. If people lose confidence, naturally that currency is going to suffer the usual fate. I think, in the minds of people, bond notes were always weaker than US dollars, and it’s manifesting now because the market is short on US dollars. I can only see it going downhill from here,” said Alex Magaisa, a political analyst.
Besides, Magaisa adds, Zimbabwe’s economic problems are also political, and one can’t be fixed without the other. “Continuing to pump in money to a system that is lacking political legitimacy does not solve the problem that Zimbabwe has. They are applying the wrong solutions to the problem at hand.”
The ruling Zanu-PF is well aware that the economic problems will present formidable political problems. It is no coincidence that the opposition Movement for Democratic Change’s strongest-ever electoral showing followed the 2008 currency collapse, as voters sought safer hands on the tiller of the economy.
More ominously, from the perspective of Zanu-PF, is that, as coffers dry up once again, Robert Mugabe’s government will struggle to pay some of the institutions so crucial to it remaining in power, such as the civil service, the military and the police.
Bond notes were the government’s short-term answer to its long-term economic problems. But instead of providing the solution, they are proving to be an expensive mistake.