Zimbabwe to print own version of US dollar

Zimbabwe is set to print its own version of the US dollar in order to ease a cash shortage in the country.

Central bank governor John Mangudya said the cash, known as bond notes, will be backed by $200m (£140m) support from the Africa Export-Import Bank.

The specially-designed two, five, 10 and 20 dollar notes will have the same value as their US dollar equivalents.

Zimbabwe introduced the US dollar after ditching its own currency in 2009 following sustained hyperinflation.

Since then Zimbabweans have been using the dollar as well as a number of other foreign currencies including the South African rand and the Chinese yuan.

But the BBC's Brian Hungwe in the capital, Harare, says that bank customers are not always able to withdraw the amount of US dollars they want because of a shortage of dollar notes in Zimbabwe.

The governor stressed that the issuing of bond notes was not the first step on the way to reintroducing the defunct currency, the Zimbabwe Herald newspaper reports.

Mr Mangudya also introduced a number of other measures to steer people away from using US dollar cash.

This includes setting a $1,000 limit on how much cash can be taken out of the country.

He wants to encourage people to make greater use of the rand since a large portion of Zimbabwe's trade is with South Africa.

But our correspondent says that people are reluctant to hold rands as they are not confident that the currency will maintain its value against the dollar.

He adds that not all shops and traders accept the full range of currencies officially in use.

The central bank brought in so-called bond coins of one, five, 10 and 25 cents, pegged to the US dollar, in 2014.

Mr Mangudya said the bank was still working on a design for the new notes, but they should be in circulation "within the next two months", the Herald reports.

Oops, forgot the link

http://www.bbc.com/news/world-africa-36210680

Brian Latham
Chengetai Zvauya
Godfrey Marawanyika

Updated on May 5, 2016 — 1:44 AM EDT

Government urges public to use cards, phones to conserve cash
Central bank says it's in talks for $200 million injection

Banks in Zimbabwe, which abandoned its own currency in 2009 because of hyperinflation, have limited cash withdrawals and shut down some ATMs as the country’s ailing economy causes dollar supplies to evaporate, threatening to result in company failures.

Lines of people are growing outside banks in the capital, Harare, as cash-strapped residents try get money to pay for everything from school fees to groceries. The shortage highlights the struggle President Robert Mugabe’s government faces in resuscitating an economy that’s half the size it was 15 years ago, according to government estimates, with about 90 percent of the population out of formal employment.

“The problem is related to Zimbabwe’s balance of payments,” Sam Malaba, the chief executive officer of Agricultural Bank of Zimbabwe Ltd., said by phone from Harare. “We’re importing more than we’re exporting and we can’t print money because we use mainly the U.S. dollar.”

The start of state-sanctioned seizures of white-owned commercial farms in 2000 by black subsistence farmers deprived of land during colonial rule slashed exports of crops ranging from tobacco to roses, triggering a near decade-long recession. That caused hyperinflation and the introduction of currencies including the dollar as legal tender.
New Measures

While the dollar has strengthened, the currencies of neighboring countries such as South Africa have declined, allowing imports to undercut factories in Zimbabwe and leading to plant closures.

The Reserve Bank of Zimbabwe on Wednesday unveiled measures to encourage the use of other currencies. It will convert 40 percent of all new dollar receipts from exports into the South African currency and 10 percent of the income into the shared European currency at the official rate, Governor John Mangudya told reporters in Harare. It will also introduce “bond notes” in denominations of $2, $5, $10 and $20 as an extension to bond coins it already uses, while limiting daily withdrawals to $1,000, 1,000 euros ($1,149) or 20,000 rand ($1,345).

Banks operating in the country include units of London-based Barclays Plc and Standard Chartered Plc, subsidiaries of Johannesburg-based Standard Bank Group Ltd. and Nedbank Group Ltd., and local lenders such as CBZ Holdings Ltd. and Econet Zimbabwe.

Cash Injection

The southern African nation is in talks with the Cairo-based African Export Import Bank to inject $200 million of dollar bills into Zimbabwe’s economy, Mangudya said by phone from Harare on Tuesday. Zimbabweans should use debit and credit cards and mobile-phone payment services to try and alleviate the crisis, he said.

Minimum wage workers, accustomed to being paid in cash, have either gone unpaid or received only a portion of their wages as employers struggle to withdraw notes.

“We all received $20 only and that was a week after payday, but we’ve been told the balance will come bit by bit,” Sarudzai Mawere, a farmworker in the northern tobacco-growing district of Mvurwi, said on Wednesday. His monthly pay amounts to $130 plus supplies like corn meal, dried fish and soap. “We, as workers, have suggested that we be paid in food and goods until the problem is solved.”
Structural Deficiencies

The government in March said it will send teams to the U.S., U.K., Canada, Australia and South Africa to encourage the three million of its 14 million citizens who live abroad to invest about $1 billion into the economy this year.

“The cash crisis is a reflection of structural deficiencies and distortions in the economy,” Prosper Chitambara, the chief economist at the Labour and Economic Development Research Institute of Zimbabwe, said. The country faces “weakening economic growth as a result of dwindling domestic demand, de-industrialization, high public debt, drought, poor infrastructure, institutional weaknesses and a volatile political environment,” he said.

Zimbabwe’s reliance on informal labor for employment, high banking costs and low levels of confidence toward lenders mean most cash doesn’t pass through the nation’s lenders, Chitambara said.

Confederation of Zimbabwe Retailers’ Association spokesman Denford Mutashu said the problem is undermining sales volumes and would probably curb economic growth.

‘May Worsen’

“A large chunk of the shortages is caused by Zimbabwe’s large import bill, so retailers are going to have to source locally,” he said.

Mugabe declared a state of national disaster in March as the worst drought in almost two decades killed cattle, withered crops and left millions of people needing food aid. The government’s also struggling to meet monthly wage bills that consume more than 80 percent of revenue.

The shortage of cash may worsen company closures, Christopher Mugaga, chief executive officer of the Zimbabwe National Chamber of Commerce, said by phone from Harare.

“If cash is the blood of the economy, then treasury and tax authorities are the pistons that pump the economy,” he said. “But if the pistons aren’t pumping it means nothing is working.”

http://www.bloomberg.com/news/articles/2016-05-04/dollar-shortage-leaves-atms-empty-as-zimbabweans-go-without-cash

Note the sentence in red ....

-New withdrawal limits set, rand returns -Cash squeeze forces RBZ into action

THE Reserve Bank of Zimbabwe is set to introduce bond notes to curb money flowing out of the country while a raft of measures have been put in place to promote the widespread use of multi-currencies to resolve the current cash shortages. The bond notes, just like the coins that were first introduced in 2014, will be backed by the $200 million Afreximbank nostro-support facility, which is expected to provide a cushion on the high demand for foreign exchange.

RBZ governor John Mangudya did not provide a date when the notes will be introduced, saying “it’s not an overnight process,” as they are currently at design stage.

“We’re still working on a design, which will be sent for printing outside the country. The notes will not be introduced immediately but probably within the next two months.” Mangudya emphasised that the introduction of the notes did not signal the return of the Zimbabwe dollar but was only a safety net against illicit financial flows.

“This doesn’t signal the re-introduction of the Zimbabwe currency. The fundamentals aren’t yet right for its comeback. This is just a measure to curb illicit flows out of the country.”

The central bank governor said that the $200 million facility will also provide an incentive facility of 5 percent on all foreign exchange receipts, including gold and tobacco sale proceeds.

The bond notes, which are meant to curb capital flight of United States dollars will be in denominations of $2, $5, $10 and $20 and will be an extension of the coins already in circulation, the RBZ governor said, adding that they will be at par with the US$.

“In order to mitigate against possible abuse of this ($200 million) facility through capital flight, proceeds from the fund shall be granted to qualifying foreign exchange earners in bond coins and notes, which shall operate alongside the currencies within the multi-currency system and at par with the US dollar,” the governor said.

He said the bond ns will also be used as discount trade related paper to provide liquidity for trading operations. The central bank has also reviewed maximum daily cash that can be taken inside the banking hall and at the ATM to 1,000 for US dollar and Euro, and R20,000. Maximum cash that can be taken out of the country has also been reduced to 1,000 for USD and euro and R20,000 with immediate effect.

The central bank noted that most retailers, local authorities, learning institutions, service stations and the informal traders were operating without point of sale machines and a directive was given that they should, with immediate effect, install the POS devices to promote the use of plastic money.

With effect from today, the central bank will convert 40 percent of new US dollar foreign exchange receipts to the rand and 10 percent to euros. This is aimed at ensuring widespread use of currencies and minimize against concentration risk of using the US dollar. The central bank and business have come up with a priority list to guide the distribution of foreign currency towards competing demands.

The policy stance will ensure that the available foreign exchange resources are efficiently appropriated towards those sectors of the economy with the capacity to generate forex,” said Mangudya. “This will help reduce the country’s import bill and at the same time enhancing production across all sectors of the economy.”

He said to encourage the widespread use of other currencies, payments for imports should be done using the currency of origin. And for effective promotion of other currencies, product pricing would need to be reflective of the multi-currency system.

Accordingly, in view of the fact that most products in Zimbabwe are from South Africa, it’s pertinent that shop owners and businesses should think in rand terms as opposed to abstract US dollar prices,” said Mangudya. Zimbabwe has been experiencing cash shortages during the past few weeks which has seen some banking institutions cutting withdrawal limits.

The major reason for cash shortages is a dysfunctional multi-currency system which has seen the country predominantly using the greenback as anchor currency unlike in 2009 (when multi-currency was introduced) where 49 percent of the transactions were performed using the rand.

Low usage of plastic money and real time gross settlement, low confidence and inefficient utilization of scarce foreign currency have also resulted in cash shortages. The strong US dollar has made Zimbabwe a high cost producing country, expensive destination for tourists and externalization continued to put pressure on the country’s balance of payment position.

In order to promote a savings culture, the central bank has with immediate effect requested all banking institutions to open special savings products which will have a minimum balance of $10,000 or 10,000 euro, R20,000 on a term structure of six months.

An annual compounded interest rate of 5 percent on US$ and euro balances and 10 percent on rand deposits will apply. The products should be tax free.

http://www.chronicle.co.zw/rbz-to-unveil-bond-notes-new-withdrawal-limits-set-rand-returns-cash-squeeze-forces-rbz-into-action/

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