Here is why you should not buy bond notes at the of rate $10 000 ZWL

It has been a very turbulent week in Zimbabwe. While the Western world was enthralled by their total solar eclipse Zimbabwe introduced yet another currency called the ZiG. The RBZ has given traders and the public until 26 April to surrender their ZWL notes, popularly known as bond notes and get ZiG notes. The problem is that ZiG notes are not yet available. They only come out on 30 April. The second problem is that when banks take back your bond notes they are doing so at a rate of $33 000 ZWL per 1 USD. This is the official rate and in the eyes of banks and the government bond notes and RTGS are one and the same thing.

Some black market traders are offering bond notes at a rate of $10 000 ZWL to 1 USD

When we did our usual survey yesterday we noticed that a lot of black market traders were offering their bond notes at a rate of $10 000 ZWL as to one. Never mind the fact that these bond notes, will be redeemed at a rate of $33 000 ZWL: 1 USD when they are eventually surrendered to the banks before the 26 April deadline passes. So why is this happening? Why are some members of the public willingly trading their USD in return for $ 10 000 ZWL in bond notes?

• The biggest reason for this is the change problem. Despite people’s contempt for the local currency, with 80% or more of Zimbabwean transactions in USD, the bond notes had a crucial change function. There are not a lot of USD coins in the market so for small transactions like paying the kombi fare of US$0.50 people have relied on bond notes to give out and receive change.
• Despite their many faults, the Zimbabwean government kept a tight lid on the printing of bond notes. It was probably not because of fiscal or monetary reasons but the simple reason that it’s much cheaper to “print” an electronic currency rather than a physical one. Besides most people would not be able to immediately notice if there was a surge in ZWL supply if the government chose the electronic printing route.
• This means that the rate for bond notes has always been much higher than the obtaining rate for RTGS (electronic ZWL) at any given point. Before the new ZiG currency was introduced the rate for bond notes was $7 000 ZWL at most but this surged to $33 000 ZWL by the deadline.
• There was a stampede to get rid of bond notes during the weekend which reached frantic levels on Monday. That panic is now over and it drained most of the bond notes in circulation. Right now the $10 000 ZWL value placed on the bond is purely because of this shortage and the need for change.

Do not fall for this trap

If you are one of those people being tempted to trade your hard-earned USD for $10 000 ZWL, be careful. The rate will inevitably move back to that $33 000 ZWL rate that banks are willing to pay when they redeem bond notes in exchange for electronic ZiG. Things will become more uncertain and once again frantic the closer we get to that 26 April deadline. Chances are you will lose big if you are still holding a large number of bond notes when the deadline comes because you will be forced to redeem these bond notes at a much higher rate than you paid.

There is however another possibility. Thanks to Zimbabwe’s notoriety in the currency world, the $100 ZWL (bond) note might become a collector’s item just like the trillions of the bygone era. This is buoyed by the fact that there are not many notes in circulation thanks to the stampede on Monday. If you, God forbid, have a large amount of bond notes you might just want to hold onto to them for the next coming months or even years in the hope that they would become a collector’s item.