In Zimbabwe, where worthless $100 trillion notes serve as reminders of the perils of hyperinflation, President Robert Mugabe is printing a new currency that jeopardizes not just the economy but his own long grip on power.
Six months ago, the 92-year-old announced plans to address chronic cash shortages by supplementing the dwindling U.S. dollars in circulation over the past seven years with ‘bond notes’, a quasi-currency expected at the end of November.
According to the Reserva Bank of Zimbabwe (RBZ), the bond notes will be officially interchangeable 1:1 with the U.S. dollar and should ease the cash crunch. The central bank also promised to keep a tight lid on issuance.
After a 2008 multi-billion percent inflationary meltdown caused by rampant money-printing, many Zimbabweans are skeptical. The plan has already caused a run on the banks as Zimbabweans empty their accounts of hard currency.
Internal intelligence briefings seen by Reuters raise the possibility that the bond notes, if they crash, could spell the end of Mugabe’s 36 years in charge.
A Sept. 29 Central Intelligence Organisation (CIO) report revealed the powerful army was as unhappy as the rest of the population with the new notes and had told Africa’s oldest leader to “wake up and smell the coffee”.
“Top security officers have told Mugabe not to blame them if Rome starts to burn,” the report said.
Reuters was unable to determine the author of the report. It is also unclear if Mugabe has seen the report, whose final audience is not specified. Mugabe’s spokesman did not respond to requests for comment, nor was the CIO available.
But the report offers a rare glimpse into the thinking of Mugabe’s security forces – the backbone of his power – and their concerns about the implosion of what used to be one of Africa’s most promising economies.
“Mugabe was openly told that the bond notes are going to cause his downfall,” the report said.
The notes’ first test will come in the informal foreign exchange markets on the streets of Harare. If they fall heavily in value, they are likely to unleash an inflationary spiral that could bleed the banking system of its last few dollars and wipe out Zimbabweans’ savings for the second time in less than a decade, economists say.
The same happened in 2008: powerful individuals with access to dollars at the official 1:1 rate were able to buy bond notes at a discount on the unofficial market and then convert them back to dollars at face value.
“You start with one dollar, then you’ve got 10, then you’ve got 100, then you’ve got 1,000 – and it’s not even lunchtime,” said John Robertson, one of Zimbabwe’s most respected private economists.
In Harare’s chaotic Road Port bus station, the main terminus for those heading to and from South Africa, Zimbabwe’s biggest trading partner, some bus operators are fearing the worst.
Required to pay nearly all their expenses – fuel, road tolls and police bribes in Zimbabwe and South Africa – in hard currency cash, they are particularly exposed.
“It’s like being on death row. You don’t know when the hangman is going to open your cell door,” said ticket-seller Simba Muchenje, pulling a wad of worthless 2008 Zimbabwe dollars from his briefcase and tossing them onto the counter.
“It’s just taking us back to the bad old days.”
In interviews, none of eight money-changers trading South African rand and U.S. dollars said they would accept bond notes at their $1 face value because of fears of immediate depreciation. The rand and the U.S. dollar have become Zimbabwe’s currencies since the local dollar was scrapped in 2009
“The banks may say 1:1, but here we say 2:1. We can’t afford to pay the same as the banks. I’m running a business, not a bank,” said Patience, a 32-year-old money-changer.