Source: New York Times
What do you do when your country is running out of cash?
Zimbabwe’s A.T.M.s are empty. Long queues snake around banks, which have severely restricted daily withdrawals. No one wants to part with what little cash there is, and the acute shortage of legal tender in the marketplace is badly straining the economy.
The problem is that since 2009, Zimbabwe has been using the United States dollar as its currency, and those dollars have all but disappeared — stashed under mattresses, perhaps, or smuggled across the border. People who are lucky enough to have some bank savings or receive regular salary deposits often cannot withdraw the money to pay bills.
Enter “bond notes.” Unable to print the real thing, Zimbabwe’s central bank recently announced that it would introduce a kind of ersatz American money for citizens to use in its place. The new notes (which have nothing to do with bonds) will be issued in denominations of $2, $5, $10 and $20, and to ensure their value, the bank says it will print only $200 million worth, backed by the Africa Export and Import Bank.
Not surprisingly, there has been a strong backlash. Economists, opposition politicians and many ordinary Zimbabweans say the bond notes are a maneuver by President Robert Mugabe’s government to reintroduce a local currency.
The inevitable next step, critics say, will be to issue the bond notes far too liberally. That is what happened with the old Zimbabwean dollar, which the government printed without restraint a decade ago.
Hyperinflation was the result, rendering the currency nearly worthless. Before the government finally gave up and switched to the American greenback, it was churning out a denomination so absurdly large that it has become a favorite among currency collectors: the $100 trillion note. That’s 100,000,000,000,000 Zimbabwean dollars. (Or about 35 American cents.)
Officials are calling on Zimbabweans to show their patriotism by embracing the bond notes, which are expected to hit the street in a few months. The notes won’t be accepted outside the country, so their success will depend entirely on how much faith Zimbabweans have in their government.
Economists predict that the bond notes are in for a rough time. After all, lack of confidence in the government is what prompted Zimbabweans to hoard or stash their American dollars to begin with.
Source: New York Times