The introduction of bond coins was a “confidence-building measure” after the hyper-inflationary and pre-dollarisation era’s “financial trauma”, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya has said.
The Central Bank boss was speaking at an Institute of Chartered Accountants Zimbabwe (Icaz) breakfast meeting yesterday where he stated that a “measure of resistance” to the new initiative was anticipated.
“…it is an issue of trust and confidence. We are introducing the coins as a gradual measure to regain confidence and trust from the market, so yes resistance is very natural and expected, but let us not live in the past,” Mangudya said.
This was after the Harare meeting had quizzed the governor on the policy rationale — a move also in motion in Ecuador and Panama — and with the executives almost expressing doubt or uneasiness on market preparedness.
However, the former CBZ Holdings Limited chief executive said that they expected the negative sentiment or pessimism to taper off or subside with time and as the market warms up to the idea.
Crucially, Mangudya told the accountants to relax as government had “no intention to defraud Zimbabweans of their hard earned cash” through this monetary initiative.
“The problem is that Zimbabwe is a financially-traumatised society. It is as bad as (a violated) individual, but please relax,” he said, adding the operations would be kept at below 5 percent of total money supply.
The new coins, which went into circulation yesterday, are worth $10 million and thus translating to an inconsequential two percent of total banking deposits of approximately $5 billion in circulation.
Mangudya acknowledged “people’s fear about the Zimbabwe dollar’s return and, hence, the need to guard against this”, but fundamentals were not ripe for this.
Crucially, he said the coins would not help fix the country’s liquidity problems, but were simply meant to establish market confidence.
“The fundamentals are not yet right (for the local currency return), but Zimbabweans must be more worried about poor governance issues (such as corruption) than bond coins,” the former bank executive said.
The special coins of 1c, 5c, 10c and 25c are part of a five-year $50 million bond, which government has secured with a foreign lender and are only useful in Zimbabwe.
At least 30 million rand worth of coins would also be imported to augment the programmes.
After ditching the Zimbabwe dollar in favour of foreign currencies in January 2009 after hyper-inflation had reached 500 billion percent, Zimbabweans have generally been sceptical about the government’s financial motives.
But like Ecuador and the Panamanian balboa — countries that have also dollarised — the special coins have the same value as the greenback.
For their daily transactions, Zimbabwean businesses mainly use the American dollar and South African rand, but usually round-off prices and give consumers vouchers or sweets due to a critical lack of coins. – DailyNews