Recently, the Reserve Bank of Zimbabwe announced the introduction of a series of bond coins intended to mitigate the effects of a lack of coinage in Zimbabwe’s monetary system. Over the years, the transacting public has had to resort to accepting the issuance of credit notes and unwanted goods – such as sweets and pens – as a means to settle purchases that don’t add up to a round figure. The introduction of the coins is therefore expected to restore good pricing models.
The coins, which have been released into circulation today, have raised a lot of questions. As such, Her Zimbabwe conducted an interview with economist, Dr Godfrey Kanyenze, who is also the Director of Labour and Economic Development Research Institute (LEDRIZ) to find out what bond coins are, as well as their functions and effects.
Daphne Jena (DJ): What are bond coins?
Godfrey Kanyenze (GK): The Reserve Bank of Zimbabwe has introduced bond coins into the economy in denominations of 1, 5, 10 and 25 cent values with the 50 cent coin to be released into circulation in mid-2015. The bond coins are so called because they are backed by a US$50 million bond coin facility that the Reserve Bank indicated they have arranged for the purpose of providing the coins with intrinsic value. If they are not backed by reserves of such a facility, they cannot be redeemed on demand and hence will not have real value. They are being introduced to avert the shortage of change in the form of coins in the economy since the introduction of multi-currencies in 2009. Hence, for the convenience of the transacting public, they are being introduced to avoid the current practice of giving out sweets, biltong, and credit notes instead of change. In addition, they should allow for proper pricing since traders have been having to round-off prices to the nearest dollar to avoid the problem of shortage of change.
DJ: Are they real money and if so, what will be their monetary value?
GK: Because they are backed by a bond denominated in US dollars, they therefore have real value. The coins will be equal in value to US cents, trading one for one as stated by the Governor of the Reserve Bank of Zimbabwe.
DJ: Can they be used outside Zimbabwe?
GK: No, they cannot be used outside Zimbabwe because they were made with the specific objective of alleviating the shortage of change in Zimbabwe. They do not have real value in themselves beyond the bond that backs them.
DJ: Are these coins a sign of the return of the Zimbabwe dollar?
GK: No, I don’t think they signal the return of the Zimbabwe dollar. If anything, they suggest that the multi-currency regime is here to stay as they are meant to facilitate change in the economy.
DJ: Is there any other country that has ever used bond coins besides Zimbabwe? And other than making change easily available for the consumer, what other significance do they have to the economy?
GK: Ecuador, El Salvador and Panama are some of the countries that have used such ‘bond coins’ when they dollarised. Their significance is that they complete the currencies being used by providing lower denominations that facilitate change, thereby making it more convenient to transact in the multi-currency set-up.
DJ: The issue of change has been a recurring problem since dollarisation. Are there no other possible solutions besides adoption of bond coins?
GK: The only other option is the first best solution of using the actual US$ coins, but these require a formal arrangement between the US and Zimbabwe government which currently does not exist.
DJ: The Reserve Bank Governor unveiled bond coins on the 5th of December and circulation begins today, just a fortnight after the announcement. Do you think the public had enough time to understand how these coins work before they started circulating?
GK: No, there was not enough time and information given to the public about the coins. I was not happy with the fact that most of the information was transmitted via television. Not everyone has access to a TV, especially when 67% of the population resides in rural areas where there is no power. The central bank could have used members of parliament, organisations that represent women and youth as well as labour organisations to distribute pamphlets and any other materials that could explain how the bond coins work. Sufficient education is important before the introduction and use of such coins to avoid misunderstanding and misinformation. This is particularly important given that the public in Zimbabwe still lacks trust and confidence in the financial system given that they lost all their savings denominated in Zimbabwe dollars when the authorities shifted to using multi-currencies in 2009.
DJ: For how long are these coins valid?
GK: The coins will remain valid for as long as we are using the US dollar and other foreign currencies.
The main photograph is taken from www.zimeye.com