Question marks over bond notes in Zimbabwe

By Bridget Mananavire

Uncertainty now surrounds the government’s planned introduction of bond notes next month — in its desperate bid to mitigate the country’s worsening liquidity and cash crisis — following yet another court challenge of the much-distrusted surrogate currency, this time by prominent Harare businessman Fredrick Mutanda.

Mutanda’s High Court legal action comes as the Constitutional Court will on Wednesday hear a similar lawsuit by former Vice President Joice Mujuru — who now leads the opposition Zimbabwe People First (ZPF) — who is also challenging the imminent introduction of the bond notes, which has caused panic among many Zimbabweans.

In his application, Mutanda — who lists the Reserve Bank of Zimbabwe (RBZ) and its governor John Mangudya as first and second respondents respectively, among others — argues that the central bank will violate the country’s banking laws by introducing the controversial and much-resisted notes.

“I make this application in my personal capacity pursuant to section 85(1)(a) of the Constitution which permits me to approach a court alleging that a fundamental right or freedom enshrined in Chapter 4 of the FROM P1

Constitution ‘has been or is being infringed’.

“I submit that whether these constitutional, statutory or common law violations are considered individually of cumulatively, the proposed bond note introduction is ill considered, is not in the national interest, is unlawful and must be stopped through or by appropriate declaratus or the issuance of an interdict for want of legality,” he charged.

“I suggest that his (Mangudya’s) broad-based commentary or analysis skirts around or avoids an honest appraisal of government’s many monetary and economic policy mistakes, misgovernance and or non-governance.

“It is these broader factors that have principally led to the present cash crisis and to our depressed economy and consequential sufferance by the public. They (bond notes) are clearly meant to be used by the public as legal tender in place of or alongside scarce United States dollar notes and other accepted bank notes in the system.

“More likely, these notes are to be used to pay suffering army, police, prison and civil servant personnel on account that the recognised legal tender is drying up or has dried up,” Mutanda, who is represented by prominent Harare law firm Honey and Blanckenberg, added.

“I suspect the governor distanced himself from calling the bond note ‘legal tender’ and or bank notes and or currency — which is what they are or will be — because he knows there is a very specific statutory process for the introduction of legitimate legal tender, bank notes, currency and he has not followed that route.

“I also have concerns about the unlawful expropriation of export proceeds earned by exporters for summary placement in the central bank’s nostro account and to the fact that there is objectively nothing to back the central bank’s electronic ‘credits’ or ‘payments’ back into those accounts.

“This conduct flies in the face of section 317 of the Constitution concerning the governor’s and the central bank’s duties and obligations regarding sound fiscal management and or the founding value of section 3 (1) h) of the Constitution concerning good governance,” the CAPS Holdings proprietor argued further.

Presenting his monetary policy statement two weeks ago, Mangudya confirmed that the country would start using the bond notes next month — in a move that sent shivers down the spines of ordinary citizens who fear the return of the much-despised Zimbabwe dollar and the attendant hyperinflation that was witnessed a decade ago.

This was despite the fact that the RBZ had last month appeared to indicate that it was having second thoughts about bringing the bond notes into circulation soon, while responding to Mujuru’s lawsuit — saying then that the surrogate currency was still at “a planning stage”.

But in his monetary policy statement, Mangudya said the central bank would definitely be introducing the bond notes at the end of October.

“It is important to note that bond notes shall not be forced on people who do not like them. The bank is addressing the concerns by planning to introduce smaller denominations of bond notes of $2 and $5.

“In addition, the bank has proposed for the setting up of an independent board to have an oversight role on the issuance of bond notes in the economy. It is critical to emphasise that the introduction of bond notes does not mark the return of the Zimbabwe dollar through the back door,” he said.

“The macroeconomic fundamentals or conditions for the return of the local currency are not yet right to do so. The issuance of bond notes has a self-control mechanism in that when there are no exports there will be no bond notes.

“At the rate at which the country is exporting and based on statistics…, we anticipate that bond notes equivalent to around $75 million will be in the market by end of December 2016,” Mangudya added.

But Mutanda is arguing that the central bank chief has already violated section 49 of the RBZ Act 23:15 — which obliges the apex bank to establish and maintain reserves to cover 100 percent of its liabilities to the public — and that the court should stop him from further violating the law by introducing the bond notes which he claims are not backed by anything.

This is despite the fact that the RBZ says the bond notes will be backed by a $200 million Afreximbank facility, which Mutanda disputes exists.

“I further suggest that the appropriate export proceeds from exporter’s accounts into the central bank’s nostro account, which are then electronically ‘credited’ by the central bank back into the expropriated accounts constitute a liability to the public, as this is not backed by any reserve or value guarantee provided by this section,” he argues.

“I further submit that my right to information from the governor through written questions delivered up to his office and for a copy, or at least sight of the alleged $200 million Afreximbank loan or overdraft facility apparently provided to the central bank to back the bond notes, which has been affectively met with a wall of silence, violates the provisions of section 62(1) and (2) of the Constitution.

“On 10 May 2016, the director of Exchange Control published — presumably under the authority of the governor — a document termed “Exchange Control Circular to Authorised dealers and public.

“This directed commercial bankers to transfer 50 percent of all new foreign receipts to the reserve bank ‘immediately’ on receipts of funds into the central bank’s nostro account whilst the balance was to be credited into the exports FCA, which FCA would receive an equivalent Reserve Bank credit and a five percent export incentive.

“What is not explained in this circular and has still not been explained, is what backs the so-called RBZ ‘credit’. Is it backed by an identifiable or credible foreign currency or gold reserve?

“Or is it realistically an accounting figure backed by air or nothing? I believe — in the absence of answers and proof — that there is nothing to back these RBZ credits. For that reason, the ‘credit’ transfers are per se unlawful,” Mutanda argues further.

Analysts who spoke to the Daily News on Sunday yesterday said the mounting legal challenges against the bond notes could delay the introduction of the controversial surrogate currency, with critics suspicious that their introduction could be a ploy by President Robert Mugabe’s stone-broke government to help it to pay civil servants on time, as well as its other due local liabilities. Daily News