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Greenback Is King as Zimbabweans Favor Candy Over Bond Coins

(Bloomberg) — When Anymore Wakamira was given coins in change at a supermarket in Harare’s affluent Borrowdale supermarket, he demanded a handful of candy instead.

Like most Zimbabweans, the cement seller has bad memories of the collapse of the country’s dollar and surge in inflation to a level the International Monetary Fund estimated at 500 billion percent in 2008. The government abolished the national currency in 2009 and allowed the use of foreign exchange including U.S. dollars and South African rand from 2009. Over the last few months, it’s reintroduced locally minted coins. It hasn’t worked.

“This isn’t real money,” Wakamira said. “It’s something they just invented and no one trusts it.”

The central bank says it introduced the so-called bond coins to alleviate the shortage of U.S. coins that has led to the practice of paying change in candy or ballpoint pens. Their failure to take off highlights the mistrust Zimbabweans have in a financial system that has decimated the value of savings and pensions in a country of 13 million people.

While bringing in the U.S. dollar in 2009 helped end an almost decade-long recession and restored financial transactions in what was rapidly becoming a barter economy, it left consumers and retailers scrambling for coins. Shops took to providing change in candy, pens and hastily scribbled “credit notes” for anything from one to 99 cents.

Bond Coins

Six years later, the situation still prevails, though South African coins are beginning to filter into the chain. In an effort to improve the availability of change, Zimbabwe’s central bank said in December that it would introduce $60 million of bond coins into the economy. While a 20-cent bond coin would be worth 20 U.S. cents, it’s only tradable within Zimbabwe. Outside the country, it’s worthless.

Zimbabweans remain suspicious of any currency minted or printed by the central bank after it intermittently withdrew deposits from private and business bank accounts when the economy almost collapsed in the decade after 2000 and was gripped by hyperinflation.

“It’s not just us who are suspicious — even government won’t accept their own coins as payment,” Hasvinei Mhere, a minibus taxi driver who plies a route from Harare to Mutoko, about 150 kilometers (93 miles) northeast of the capital, said in a telephone interview Feb. 3.

Refuse Acceptance

“The toll on the Enterprise Road keeps refusing to accept bond coins,” Mhere said, referring to the Zimbabwe Revenue Authority booth he must pass through to get to his destination. The nation’s inter-city highways are all toll roads, with the $2 fee going toward repairing the dilapidated network.

The lack of trust in the bond coins is frustrating Zimbabwean central bank Governor John Mangudya.

“I won’t stop talking about the importance of these coins,” Mangudya said in a telephone interview from Harare. “There’s no economy that doesn’t use coins. Coins increase competitiveness by reducing prices and it’s a major challenge we face, this war on perceptions which causes a lack of confidence that makes people live in despair and despondency.”

That “despair and despondency” is a legacy from the hyperinflation of 2008 and continued job losses caused by the closure of hundreds of factories and businesses after that, resulting in the economy shrinking by about 40 percent.

Zimbabwe’s economy will probably expand 3.2 percent this year, after rising an estimated 3.1 percent in 2014, the central bank said on Feb. 11. Consumer prices fell 1.3 percent in January from a year earlier, the statistics office said on Feb. 16.

Coins Disrespected

“The coins aren’t backed by anything and people know that, hence the resistance,” Harare-based economist John Robertson said in a telephone interview Jan. 16. “Currencies are backed by stability, so government can’t command respect for these coins because they’re not backed by anything.”

Wakamira, 36, remains resolute. His small roadside-supply business, which sells mainly cement, sand and stone, won’t be accepting or giving “fake James Bond money,” he said.

“That stuff is for fools,” he said. “Imagine they suddenly decide all money will be bond money. We’re back to square one. There is only one currency in this whole world, and that is the U.S. dollar. It works anywhere, and it works here.”

To contact the reporter on this story: Brian Latham in Harare at blatham@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net Ana Monteiro, Karl Maier, Antony Sguazzin

Source: www.bloomberg.com

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