Zimbabwe is more than doubling its issuance of “bond notes”, a domestic quasi-currency, to $500 million, its central bank governor said on Wednesday, stoking fears of a slide towards the rampant money-printing and hyperinflation of a decade ago.
Harare has used U.S. dollars and South African rand since 2009, after the Reserve Bank of Zimbabwe (RBZ) printed so many Zimbabwe dollars that inflation hit 500 billion percent, rendering the notes worthless.
But a dwindling supply of cash dollars has led to banks limiting daily withdrawals to as little as $50. Companies are struggling to pay for imports and foreign investors cannot repatriate dividends or profits.
The RBZ introduced the bond notes in November, initially printing $200 million worth, as an antidote to the cash shortages. On Wednesday, RBZ governor John Mangudya said the bank would inject an additional $300 million into circulation.
The bond notes have been trading at a discount to their official 1:1 face value to the dollar since they were launched but have not collapsed in value as some had feared, largely because they too have been in scarce supply.
Injecting more liquidity risks undermining that rarity value. “If the scarcity goes away, it’s a threat to that value,” Harare-based independent economist John Robertson said.
To try to allay the fears of Zimbabweans terrified of a back-door return to the Zimbabwe dollar, Mangudya said foreign currencies would remain in use until the southern African nation’s moribund economy picks up.
This included having reserves equal to one year’s import cover, a sustainable budget and “right” consumer and business confidence, he told a news conference.
“The multi-currency system is here to stay up until the fundamentals of our own currency have been achieved,” the central bank governor said.
Nearly everything in Zimbabwe is priced in U.S. dollars, although the absence of cash means nearly all transactions, including payment of state wages, are electronic, either via domestic payment cards or mobile phones.
Mangudya said Harare was negotiating with the Cairo-based Afreximbank to underpin the $300 million bond note issuance. The development bank, which is partially owned by the RBZ, issued a guarantee for the first $200 million, according to the RBZ.
Afreximbank has refused to confirm this and the terms of the guarantee have not been published. It has declined to comment on Mangudya’s desire to increase bond note issuance.
Mangudya said that at the end of June local banks were holding $75 million owed to foreigners who have invested in the stock market, and that the central bank would set up a portfolio fund to help them repatriate dividends and profits.
“The fund is essential to re-establish confidence on the Zimbabwe Stock Exchange by demonstrating that there is a pathway for foreign investors to realise their gains,” Mangudya said.
Additional reporting and editing by Ed Cropley and Catherine Evans.