Simon Allison: The new Zimbabwean dollar that isn’t

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He hits the nail on the head:

The last time Zimbabwe was in this kind of position, it did something few economists would recommend: it simply printed more money, with disastrous consequences. The sudden, poorly-managed influx of Zimbabwean dollars into the economy was the direct cause of the economy-wrecking, poverty-inducing, development-stunting hyperinflation that followed. Surely, surely, Zimbabwe would not go down this route again, no matter how severe the cash crunch?

Sure they will.

I think most people will agree that this latest move is just another symptom of the mismanagement that Zimbabwe has experienced at the hands of President Mugabe and his cronies. But I’d be interested in better reporting on the politics behind this step.

Zimbabwe will introduce so-called “bond-notes”. These look deceptively like paper currency and coins, but actually are bonds, secured by a $200 million loan by the African Import Export Bank. In theory, the bearer could therefore go to the bank and/or government and ask for the bond to be exchanged into U.S. currency. But in practice, one can doubt that this would actually work. No one (who isn’t forced to) will recognize these for their nominal worth, especially not outside Zimbabwe, rendering them quite useless to ease the country’s trade and hard currency deficit.

In the best case, they will trade at a discounted value, leading to higher costs for importers. In the worst case, they will tempt the government into a new round of money printing, only this time with the added bonus of skyrocketing debt.

So who came up with this idea and how was the AfrImEx Bank convinced to back the scheme? How will the distribution mechanism work and who is guaranteeing a transparent process (my guess: nobody). Will there be any accountability? And as this is clearly a stopgap measure at best, where are Zimbabwe’s fundamental economic reforms, which have to be linked to a reform of the political system to be effective? I’m not sure that we will get any satisfactory answers to these questions any time soon.