Zimbabwe News and Internet Radio

Zimbabwe scraps bond-note dollar peg

By MacDonald Dzirutwe | Reuters |

Zimbabwe scrapped the peg between its quasi-currency bond note and the U.S dollar on Wednesday, its central bank governor said, potentially paving the way for its official currency exchange rate to slide sharply to match its value on the streets.

The Reserve Bank of Zimbabwe (RBZ) Dr John Mangudya
The Reserve Bank of Zimbabwe (RBZ) Dr John Mangudya

Central Bank Governor John Mangudya said the surrogate bond notes and electronic dollars known as Real Time Gross Settlement (RTGS) would trade in a managed float against the U.S. dollar and other foreign currencies in a new foreign exchange interbank market launched on Wednesday.

Mangudya said bond notes and electronic dollars will be called RTGS dollars (RTGS$), in effect becoming Zimbabwe’s currency of trade.

The main opposition said the government had re-introduced the Zimbabwean dollar through the back door but without the fundamentals needed to support a new currency. The finance minister has said a new currency will come within 12 months.

“Regrettably the economy now enters another period of self induced shocks that will see salaries being devalued, hyperinflation, shortages and queues,” Tendai Biti, a former finance minister and senior opposition official, tweeted.

Many Zimbabweans had long expected the move after the bond note started losing value on the black market.

When bond notes were introduced in November 2016, Mangudya said they were guaranteed by an African Export and Import Bank loan and that anyone could exchange the surrogate currency at par with dollars.

“We are using what is known in economics as ‘managed floating’ on a willing buyer, willing seller basis,” Mangudya said in a monetary policy speech, suggesting that the central bank will try to keep control of the slide in the exchange rate.

Zimbabwe adopted the U.S. dollar after dumping its hyperinflation-hit currency in 2009. It has recently been struggling with a shortage of cash dollars, leading to prices on imported goods spiraling in the last few weeks.

A sharp increase in the price of fuel together with broader economic difficulties last month led to violent protests that were met by a brutal security crackdown.

Mangudya said several currencies like sterling and South Africa’s rand will remain in use and that importers would buy dollars at rates set by the interbank market.

Businesses and miners have been lobbying the central bank since last year to float bond notes and RTGS$.

Zimbabwe has maintained a one-to-one pegged exchange rate between bond notes, first launched in 2016, and the dollar even though the greenback and other foreign currencies have fetched high premiums when exchanged for the notes. The bond notes are used for day-to-day transactions in the shops and elsewhere.

Harare-based economist Ashok Chakravarti said businesses that bought dollars on the black market were charging higher prices, fanning inflation, which reached 57 percent in January.

“This system will stop that completely because you will have a transparent interbank rate which will be used by the market and importers to price their goods,” said Chakravarti.

On Wednesday, $1 fetched up to 3.50 bond notes on the street and more for RTGS dollars.