Friday, 18 November 2016

THE TRUTH ABOUT BOND NOTES - Zimbabwe Seeks Parliamentary Approval For Bond Notes As It Faces Legal Minefield

Government has moved to amend the Reserve Bank of Zimbabwe Amendment Act through Parliament to regularise the introduction of ‘bond notes,’ a surrogate currency designed to arrest a biting dollar note shortage, following legal challenges to President Robert Mugabe’s use of a decree to ramrod the new currency into the economy.

Last month, Mugabe invoked the Presidential Powers (Temporary Measures) Act to amend the Reserve Bank of Zimbabwe Act to designate bond notes as legal tender.

But lawyers have said the use of presidential powers was unconstitutional while the Zimbabwe Lawyers for Human Rights (ZHLR) on Monday challenged the introduction of bond notes in the High Court.

“The Presidential Powers (Temporary Measures) Act is patently unconstitutional,” said legal expert Alex Magaisa in reaction to the decree.

“You can’t amend primary legislation using secondary legislation. The constitution specifically prohibits it. Section 134 of the Constitution makes it clear that making primary legislation is a job for Parliament only.”

According to an extraordinary government gazette published on Wednesday, government is now seeking to introduce the Reserve Bank Amendment Bill in parliament. According to Clause 4 of the Bill, it “will statutize the provision for the issuance of bond notes temporarily enacted by the Presidential Powers (Temporary Measures) (Amendment of Reserve Bank of Zimbabwe Act and Issue of Bond Notes) Regulations, 2016. It will also validate the issuance of bond coins in circulation before that time.”

A bond note unit (dollar) will trade at par with one US dollar, according to the government notice.

The Bill will require parliamentary clearance — which Mugabe tried to side-step with his proclamation — despite his Zanu-PF party having a two thirds majority.

In May, the central bank announced its plans to circulate the token currency alongside the US dollar and other currencies in Zimbabwe’s multi-currency basket, which also includes South Africa’s rand, Botswana’s pula, China’s yuan, the euro, British pound and Japan’s yen.

The announcement triggered some legal challenges and a series of street protests, including possibly the biggest anti-Mugabe demonstration in a decade, held on July 6 but government hopes the bond notes will resolve a crippling shortage of bank notes.

Central bank governor John Mangudya on Thursday told diplomats that the notes would only be available over the counter.

The introduction of the bond notes, which have triggered fears of a return to excessive money-printing and hyperinflation, has been held back until “the central bank is satisfied with levels of public awareness of the new currency’s features,” according to Finance Minister Patrick Chinamasa.

The central bank has repeatedly promised not to print bond notes beyond the $200 million backing provided by an Afreximbank facility, insists the bond notes are primarily an incentive for exporters, who will get up to 5 percent of the value of their exports, paid in the local currency. The central bank says the incentive is targeted at closing a trade gap which has seen the country ship out $20 billion for imports since 2009.
Zimbabwe Seeks Parliamentary Approval For Bond Notes As It Faces Legal Minefield
In 2014, the RBZ introduced bond coins, backed by a $50 million AfreximBank facility in a bid to resolve the shortage of small change. Despite initial skepticism and resistance, the coins have gained widespread acceptance and use in the economy. Source
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