Bankers divided over bond notes
By Shame Makoshori
Zimbabwe’s banking sector is deeply divided over bond notes, despite public appearance of unity over the planned introduction of the domestic currency, the Financial Gazette can report.
The Bankers Association of Zimbabwe (BAZ), which represents the interests of banking institutions, has indicated its support for the planned introduction of bond notes, first announced by the Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, in May.
But sources said some bank executives have expressed reservations over the bond notes, which have been described by President Robert Mugabe as a “surrogate currency” of the United States dollar, the currency of the country’s national budget.
Bankers have been divided between maintaining a multi-currency system, where the US dollar has been the anchor currency, and joining the Rand Union, several interviews with financial sector chief executives officers (CEOs) revealed.
The Rand Union is a grouping of four countries using the South African Rand as a medium of exchange. These are South Africa, Namibia, Swaziland and Lesotho.
Bankers said this week that while in public, BAZ had presented the face of a unified banking sector, telling the nation that the powerful lobby had placed its full weight behind the RBZ, there were serious divisions within the sector and support for the RBZ’s measures was not unanimous.
The country dumped its national currency in 2009 and adopted a multicurrency regime to escape a hyperinflationary crisis that had triggered widespread commodity shortages in the country.
The measures had briefly calmed the markets until a wave of externalisation and currency shortages rattled the economy this year, sending shock waves in government and the private sector.
To arrest the potentially devastating currency crisis Mangudya announced early this year that he would introduce bond notes.
The plan is to use bond notes to fund a five percent export incentive in order to boost vital hard currency inflows.
Under his strategy, bond notes would be deposited into exporters’ foreign currency accounts.
He claims these would be easily exchanged for greenbacks on request.
But this has done very little to discount suspicion, with the majority of Zimbabweans demanding that the RBZ halts the plan.
Zimbabweans have bitter memories of the hyperinflationary crisis that destroyed the economy, when the local currency suffered extensive erosion, leaving people without savings.
Billions worth of pensions were wiped out.
This week, the Bankers Association of Zimbabwe (BAZ) said the lobby was ready to see the smooth rollout of bond notes.
But discussions with bank CEOs revealed that financial institutions detested bond notes as much as the public.
“Banks are ready to comply with regulatory requirements,” said BAZ president, Charity Jinya.
“Banks work very closely with regulatory authorities to ensure that whenever new policy measures are announced, adequate arrangements are made. I am not aware of any banks that have declined to accept transactions in bond notes once introduced. Banks still await notification of the operating modalities for bond notes,” Jinya added.
She said the information that banks were now awaiting from the central bank included, the size and security features of the notes.
Once this information is availed, banks will take the necessary steps to ensure that these are incorporated, she added.
But a bank CEO said there were divergent views over bond notes in the sector.
“We have different views over the issue of bond notes,” the leading bank CEO said.
“However, when it comes to presenting our thoughts in public, we have to speak with one voice as BAZ. As an institution, we have taken the position that will defend shareholder value and the interest of our customers,” the banker said.
Another bank CEO confirmed the sharp divisions between BAZ members during deliberations.
“Just like in any other organisation, there were discerning voices during our deliberations. That is how measures like the formation of a committee to oversee bond notes ended up being in place. But the majority prevailed, and our position as BAZ is that we support the governor,” he added.
Ahead of the introduction of bond notes next month, volatilities in banks have touched fresh depths, with several leading banks failing to honour withdrawals.
The central bank chief told the Financial Gazette that he had laid the groundwork to arrest extensive currency externalisation.
The stock of the greenback in circulation has been diminishing at a worrying scale.
“We are importing notes,” Mangudya said.
“We will not lie to the people; we want to genuinely help the people,” Mangudya added, in response to growing questions over reports of a Zimbabwe dollar return.
Asked if he was aware of sharp differences among bankers on the issue, the RBZ governor said as far as he was concerned, bankers we fully behind his plan.
He cautioned, however, that it was possible bankers did not mean what they were telling him.
“They may be telling us what we want to hear,” said Mangudya, who spoke exclusively to the Financial Gazette last week.
“They have said they support us, and they have made a statement to say they support us,” he added.
Bond notes have created a climate of uncertainty.
Even in government, executives seem not sure of what will transpire on their introduction.
The International Monetary Fund (IMF) said in June it would assess the impact of Zimbabwe’s plans to introduce bond notes, a measure that has caused a run on banks amid fears of the return to the local currency.
The country was expecting its first loan since 1999 from the IMF under a debt clearance strategy supported by international creditors in October last year.
This was after the country had met its targets under a 15-month staff monitored programme, an informal agreement between a government and IMF staff to monitor implementation of economic reforms.
However, Zimbabwe’s response to the deep liquidity crunch later threatened what progress Zimbabwe had made, with companies reporting sharp slowdowns and closures.
A strong public backlash has seen RBZ make at least three tweaks on the measures, further denting confidence.
As the clock ticks towards the release of bond notes, bankers have been telling the Financial Gazette of the deadlocks.
Another top banker with extensive experience in the global and regional financial markets said the initial push was to adopt the South African rand.
“For us as an institution, we would prefer using the rand, or joining the Rand Union,” said the banker.
In June, BAZ president Charity Jinya said the bankers’ lobby preferred the rand as the anchor currency in Zimbabwe.
She said four options were realistically available: Maintaining the multi-currency system; full dollarisation, adopting the rand or going back to the demonetised Zimbabwean dollar.
Indicating Zimbabwe’s economy is already integrated into South Africa, which accounts for over 60 percent of exports, Jinya said adopting the rand was much better.
“It is not sustainable for the US dollar to continue as the major transacting currency, so we would recommend that the South African rand be used as the main transacting currency,” she noted.
Authorities have ruled out joining the Rand Union.
But the vanishing of US dollar notes has left the markets in turmoil, and Mangudya said they would be unrelenting.
“ … bond notes are coming. We want to do a serious campaign before that to avoid counterfeits,” Mangudya said.
Asked if the RBZ had put in place measures to make sure shop owners would not reject bond notes when they are introduced, Mangudya said that was unlikely.
“It will be foolish for any shop owner to discount bond notes. We have said they will bank bond notes in their US dollar accounts (on a value of) one is to one. Banks can sell bond notes back to me (RBZ) so that I give them US dollars. I understand their fears. It is because of what they went through.
“The biggest safeguard that we have is that no exports, no bond notes. We have put in place policy mechanisms to stop externalisation,” he said. Financial Gazette