RBZ answers frequently asked questions about bond notes

In a document the Reserve Bank of Zimbabwe answers frequently asked questions on Bond Notes. Here are five out of 22  questions the central bank attempts to answer;

1. What are Bond notes and are they not a currency?

Bond notes are a domestic financial instrument which is useful in guarding against externalization of the US dollar. Financial instruments are monetary contracts between parties, which can be created, traded, modified and settled. Financial Instruments can be:

  1.  cash in which case, they are a currency,
  2. evidence of an ownership interest in an entity – share, or
  3. a contractual right to receive or deliver cash (financial instrument) – bond Bond notes are zero coupon, tax-exempt financial instruments, which are issued par with the US Dollar that is 1:1.

2. Are Bond notes not a surrogate Zimbabwe dollar, and won’t there be a conversion rate of the Bond note against the US dollar?

Bond notes are not a surrogate Zimbabwe dollar for they are not currency but a financial instrument, issued at par with the US Dollar. Bond notes will operate in the same manner that the Bond coins have been operating. Bond notes will exchange at the same value as the US Dollar. When the Bank introduced the Bond coins for the purpose of change in 2014, many have been sceptical that they will not maintain their value, which they have done.

3. What guarantee do we have that the Government will not direct the RBZ to print Bond notes which are in excess of the US$200 million facility?

Bond notes derive their value from the Nostro Stabilisation and Export Finance Facility and this Facility caps the amount of Bond notes to be issued at the facility amount of US$200 million. The Bank cannot issue Bond notes in excess of that amount. The Bank cannot issue Bond notes when there are no exports. The partners involved are reputable institutions who have a name and international rating to protect. The Bank is also going to put in place an independent body to monitor the entire printing.

4. When are Bond notes coming into circulation?

Bond notes are expected to start circulating in November 2016.

5. In which country are the Bond Notes being printed?

Bond notes will be printed outside Zimbabwe on an agreement that not only safeguards against abuse of the US$200 million facility but also the identity of the printers.

You can download the rest of the questions and answers by clicking here

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