Bond notes’ value plunges as central bank floods market

The value of Zimbabwe’s bond notes against the US dollar plunged over the weekend to its lowest levels ever as the central bank pumped additional liquidity into the market to ease cash shortages.

The bond note discount against the US unit increased from around 45% to 60% over the weekend with street dealers attributing the latest decline to an oversupply of the currency.

Essentially, those seeking US Dollars will pay around 160 in bond notes for $100.

Until recently, the bond notes, a currency the central bank claimed had a par value to the greenback, seemed to be holding fort against the US unit with street dealers quoting a 45% premium for the largely owing to the scarcity of the currency of the market.

The Reserve Bank of Zimbabwe said it would inject around $150 mn in July.

A further $100 mn was expected to be injected into the economy this month as the central bank moves to ease cash shortages.

“The Reserve Bank has injected more cash into the banking sector, therefore, those people who are selling cash at 100% would soon count their losses. If they are being encouraged by politicking, they are going to lose money. This week alone (last week) we have injected $25 million and next week (this week) we are putting $30 million, so this month we are saying we have increased it from $100 million to $150 million, therefore there is no logic for prices to go up when there is more money in the economy,” central bank chief John Mangudya told Zimbabwe’s NewsDay, a private daily.

“Bond notes in the market right now is about $390 million… Whenever we release money like what we are doing, some of the money remains in the banks and some of the money is captured by people in circulation. So when we talk about money, do not look at the money at the banks only, talk about the money in the economy — that is more important. Not money in the vault (bank vaults). In this economy, there is more than $2,5 billion in circulation, cash, then you now add money at the banks which is about $500 million. Bond, as I said is $390 million, but if you go to the banks they will tell you they have got $20 million with them which means the money is in the market which is why people then sell money.”

The central bank had largely been shorting the market off the bond notes to hold value, a strategy that seems to have worked until recently.

The scarcity of the US unit has pushed demand for the currency in the market but has not worked as much for electronic balances with dealers selling US dollars at a premium of 75% for electronic transactions.

A cash shortage in the economy has created a demand for physical cash – bonds and US dollars.

Bond notes were introduced by the central bank last year.

RTGs/US rate has also come down significantly from a peak of 75% to 40%.

This comes after Zimbabwe’s disputed Presidential election that saw the military killing 6 protestors.

Already, a court challenge by President Emmerson Mnangagwa’s strongest rival, Nelson Chamisa.