In an interview with Bloomberg carried out on the 15th of August, the Finance Minister Professor Mthuli Ncube said they would be introducing Zimbabwean Dollar notes and coins to replace the bond notes and coins which have stood in as the physical representation of the Zimbabwean dollar. While not much detail was offered it is confirmation of the final move in returning to a fully-fledged and tradeable domestic currency.

The minister said the currency will be backed by as yet unspecified amounts foreign currency, gold and loans. While these words are meant to inspire the confidence of a backed currency they leave more questions than answers. While the government’s foreign currency position is not easily ascertainable it is highly unlikely that they have foreign currency to speak as they recently were left with no choice but to free up the interbank market for foreign currency. Gold backing while in principle a good and trusted theory has been moved away from in addition to that Fidelity printers continues to experience low gold deliveries. Finally, the bond notes and coins had their value backed by loans from the ever-present Afreximbank and we all know how that story has unfolded.

An unnamed Treasury spokesperson was quoted as saying they would need to compile data on reserves before they can give clear direction on how they will proceed. Recall John Mangudya saying that they believed there were somewhere between 400 and 600 million in bond notes and coins in circulation. The Zimbabwean dollar, by whichever name you choose to call it has not failed well at well. Introduced as the RTGS dollar (a rebrand of the bond note in all honesty) in February at 1:2.5  with the US dollar officially the currency now trades at 1:10 on the official market. Little confidence has been inspired by moves the government has tried and this one will likely fail to inspire confidence as well.

Will this solve cash problems?

It is difficult to definitively answer this question but the short answer is no. The minister said the currency will operate at 1:1 with the Bond note and therefore you would expect a simple swap of existing notes and coins.  Increasing the money supply would be suicidal in a hyperinflationary environment. Also, there’s the little matter of Intermediated Money Transfer Tax or 2% tax which has been a very profitable venture for the government pushing them into a budget surplus. Surrendering the surplus which has been one of the few highlights of Mthuli Ncube’s short tenure is unlikely to be acceptable.

Meanwhile, the exchange rate situation has improved. While the nation is nowhere near stability the rate has slowed down drastically to what would be considered a creep by recent Zimbabwean standards. Over the period July 22 – August 20th the interbank market rate has gained 13.96% (depreciation of Zimbabwean Dollar) while the parallel market moved only 6.67% up. The difference between the two rates, which is important because it shows just how open the interbank market is is down to only 1.08 which ideally means the markets have freed up more.

The plans to introduce the new notes and coins are likely far off but the ministry of finance is no stranger to surprising citizens. We expect more detail to unfold as we move towards the announcement of the 2022 budget.