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Banks

BoE stress tests: all you need to know

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Property

Zoopla wins back customers from online property rival

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Currencies

Asia markets tentative ahead of Opec meeting

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

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Categorized | Currencies

Zimbabwe launches parallel currency to tackle cash crunch


Posted on November 28, 2016

Zimbabwe has begun issuing a controversial parallel currency designed to boost exports and ease the southern African nation’s severe cash shortage, as fears grow the move will backfire and lead to a repeat of the hyperinflation that crippled its economy eight years ago.

In a weekend statement the Reserve Bank of Zimbabwe said it would make US$10m worth of the so-called bond notes available to exporters from Monday, in the form of a $5 bonus per $100 of exports.

The notes have an official exchange rate of 1-1 with the US dollar, one of several foreign currencies used in the country since it abandoned its own money in 2009. But the central bank’s claim that they will hold their value is facing widespread scepticism from ordinary Zimbabweans.

Some banks began issuing the notes on Monday. At the capital Harare, customers in one bank were offered a maximum withdrawal of $200, of which $150 was in cash and the balance in bond notes.

“I paid dollars into my account and the bank is now forcing me to take bond notes,” one angry customer complained. “My money is being converted illegally from dollars to local notes which can only be used in this country.”

A bank teller said most customers were taking the notes but some had refused them. One of the country’s largest supermarket groups refused to accept them, with till operators saying they were awaiting instructions from their head office.

A renewed collapse of trust in the financial system would add to the pressures mounting on the government of President Robert Mugabe, who has ruled Zimbabwe since its independence from Britain in 1980 and who at the age of 92 is the world’s oldest leader.

Lengthy queues formed outside banks across Zimbabwe on Saturday following the RBZ announcement as depositors sought to withdraw dollars before they became, in the words of one banker, “contaminated” by the notes.

“It is Gresham’s Law at work — bad money is driving out good,” the banker said.

The central bank has said the bond notes will be backed by up to $200m lent by the Cairo-based Afreximbank, although John Mangudya, its governor, has said it may eventually issue much less.

US dollar notes have become increasingly scarce in Zimbabwe as they have flowed out of the country, draining liquidity from an already weak economy.

Levels of cash held by banks fell to $92m at the end of September, down from $255m a year earlier. Bankers say cash holdings have declined since then, leading to increasingly tight curbs on withdrawals, with average daily limits of $50 to $100 a day at most banks.

Compared to cash levels, banks’ holdings of electronic dollars have ballooned, with $12 held in balances with the central bank for each physical dollar available compared with a ratio of three to one at the end of 2015.

Bankers believe they will soon have to put bond notes rather than dollars in automated teller machines, which will further anger an already hostile public. Opposition parties have planned a demonstration for Wednesday, with several public protests against the bond note plan already held in recent months.

There have been several delays to the launch of the notes, originally scheduled for July. Causes have included contradictory instructions to banks and confusion over the legislation enabling them. Last month a German company approached to print the notes refused to do so. It is unclear where they are now being produced.