Bond Coins, Bananas and Bonding Ourselves to International Debt

By Takura Zhangazha*

A couple of weeks back I sought to buy a couple of bananas from a young man pushing a wheel-cart. I had the rather ubiquitous South African two rand coin and handed it over to him. He looked at it and calmly handed it back asking, ‘Don’t you have bond coins?’  As it turns out I did not and he advised that he could not sell me the bananas given the fact that the bond coin was benefiting from the slip in value of an actual currency that is the South African rand. If he did, he said, then it would be his loss and my gain.

Apart from my surprise at the fact that my money was relatively useless to him, I respected his reasoning over the impact the sale of two bananas would have on his business.

It also turns out that at the time I attempted to purchase the bananas, the bond coin had stronger local value than the rand, even though the former is not an actual currency.

When the bond coin was introduced late last year, the Governor of the Reserve Bank, Dr. Mangudya justified it on the grounds that it would improve small change transactions particularly where it concerned the retail and banking sectors.  And fair enough, there had been a publicly acknowledge problem of people being given notes, sweets and other small items in lieu of change.

But even when they were launched, these bond coins were received skeptically by the public. Not least because of a latent fear of the return of a Zimbabwean currency and the memories of our hyper-inflationary period. In short there was an evident lack of trust that the bond coin was of any actual monetary value. 

Well as it turns out, it is.  As the actual term suggests, the bond coin is a result of a US$50 million dollar bond that we have with the African Export-Import Bank (Afreximbank). Or to be less euphemistic, we are using these coins on the basis of a loan agreement that we have with the aforementioned institution. We came to an agreement that over a period of time, the Afreximbank gives us a loan and we promise to pay it back with or without interest.

For economists and banking/financial experts this is nothing out of the ordinary as it is standard global business practice for governments, banks/companies to issue bonds to governments and other institutions. The only surprise may be the fact that as a result of our ‘bond’ we have a mimic 'currency' called a ‘bond coin’. 

All the same it is important to understand that the main reason why our bond coin now trades better than the rand nationally is that its value  is pegged to the United States dollar and also backed up by the US$50m that we owe Afreximbank.

This might perhaps be a small part of the international debt, estimated to be at least US$7 billion.

It would however still be trite to posit that the bond coin is therefore a direct everyday symbol and example of Zimbabwe’s ongoing debt crisis.  Even if it appears to be demonstrating utilitarian value in day to day transactions as was the case with the banana selling entrepreneur I encountered.

Every time we use that bond coin we are transacting in debt.  Or to use a Thomas Mapfumo line from a song off  his latest album, Dangerzonetitled, ‘Chikwereti’, it’s a debt that shall be wanted and with interest.

But even then there are more questions that must be thought about.  Who exactly is benefitting from the trade and speculation in bond coins?  Alternatively, how long and what are the key conditions of the ‘bond’ we have with the Afreximbank intended to last and whether the intention is to renew it or extend it?

The Reserve Bank has already announced that it has independent (read as private) auditing firms that will closely monitor the usage of these bond coins. This is well and good, but the end effect is now with the everyday citizen who might now be more vulnerable to what appears to an unpredictable money market for those that cannot access the actual real value US dollar.

The onus to protect ordinary traders and citizens obviously lies with the Reserve Bank and its stakeholders. Unfortunately for now, in the midst of all these transactions and since November 2014 there is no Reserve Bank Board to play an oversight role on the governor.

In the final analysis however, it is the trust that my friend the banana hawker has in the bond coin that will always be problematic.  He may not know this, but it is part of a national burden and debt over and above its utilitarian relief.  I just hope he does not keep a sack of those coins at home.  

*Takura Zhangazha writes here in his personal capacity (takura-zhangazha.blogspot.com)