Zimbabwe's fresh currency conundrum

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Zimbabwe, not known for its economic astuteness, will soon be introducing what it calls bond notes, which it says will have the same value as the US dollar currently in circulation in the southern African country.

This is the latest in a string of innovations from the country that brought us “special agro cheques and bearers’ cheques”, forms of currency that were not worth the paper they were printed on.

In a nutshell, the government says the bond notes are backed by a $200 million facility from Afreximbank and we have nothing to fear.

But Zimbabwe has a bad history when it comes to printing money and its citizens are up in arms against the new notes, as they feel the government now has carte blanche to print currency, a privilege that was taken away when the country adopted the US dollar (and several other currencies) in 2009.

Now, while Zimbabweans may think they are a pioneering this bond note thing, in the 1980s, a broke Liberian government, which was failing to pay government workers, decided to mint its own coins and peg them at the same rate as the US dollar.

The new ungainly coins were known as the Doe Dollars or Doebucks, named after the leader of that country, Samuel Doe.

For a while they traded at par with the US dollar, but soon confidence flagged and a parallel market (the term black market was unofficially declared politically incorrect in Zimbabwe about a decade ago) soon developed.

While our bond notes are backed by Afreximbank, the Doe Dollars were backed by South Korea.

In no time, US$1 was trading at about 3 Doe Dollars on the parallel market and inflation became the order of the day in Liberia.

A bit of background, Liberia had been using the US dollar for several decades prior to the introduction of the Doe Dollars. And the circumstances prevailing then in Liberia are quite similar to what Zimbabwe is going through right now.

See two things Zimbabweans are afraid of; the government printing money and inflation and the introduction of the bond notes raises the spectre of these two.

Dear reader, Zimbabwe already has bond coins and one would ask what the furore over bond notes is.

Like their notes siblings, bond coins initially faced resistance, but they are now widely accepted and probably authorities are praying for a similar trajectory again.

On a perception level, bond coins were brought in to solve a problem, specifically the shortage of loose coins and change brought about by the adoption of the US dollar. They are akin to tokens you use on a snooker table, absolutely valueless.

Bond coins never pretended to be money, but were serving a purpose, but bond notes on the other hand are supposed to look like money, are supposed to act like money, but are not money.

Like the Doe Dollars before them, there is absolutely zero confidence in bond notes and their intrinsic value may be eroded long before they are introduced.

When the bond notes are finally introduced, a certain inevitability, just remember Liberia went through the same with disastrous consequences. Maybe this is a lesson history can teach us.

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