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An economy without smaller denominations of the currency in use is like an engine that runs without oil. Yes, it might have the structural framework, but it lacks the catalyst to smoothen its movement. It simply grinds on like a “square” wheel. Since dollarisation in early 2009, the economy’s smallest common currency denomination was the US$1, by and large. Prices tended to start from there, and for those that were lower than the US$1, customers had to be forced to spend the whole amount or accept sweets for change. In this case therefore, one might argue, our smallest currency denomination was a sweet that cost 10 US cents.
This made trade very cumbersome, reminding the transacting public of the difficulties they faced during the hyper-inflationary era when they had to count sackfuls of bearer cheques and making sense of their different colours, shapes and appearances yet their value – billions, trillions and quadrillions and so on – was the same.
Zimbabweans suffered a collective headache since 2009 operating in an economy that lacked small change to ease transactions and ensuring that they bought products at the right price.
It was not until December last year that the situation improved when the government came up with the innovation of bond coins.
There was understandable initial resistance. Traders were unsure if the government was not carrying out an experiment to then reintroduce the local currency.
They opposed the proposal even when the Reserve Bank of Zimbabwe tried to explain that the bond coins were not a precursor to the return of the Z$ but just an effort to make small change more easily available. When the proposal became reality in December with 1c, 5c, 10c, 25c bond coins being put in circulation, the transacting public shunned them still.
Nine months after the first coins were put into the economy, they have been embraced as part of the mainstream basket of currencies in circulation.
RBZ Governor, John Mangudya reported in his monetary policy statement last week that a majority of Zimbabweans now prefer using bond coins.
“The Reserve Bank,” he said, “is very grateful to all stakeholders from the retail, transport, informal traders, consumers and business organisations who have made the bond coins initiative a success. Acceptance of the bond coins has also benefitted from the progressive weakening of the South African rand, as the transacting public prefers to minimise exchange losses by shifting to the use of bond coins.”
We are delighted, as Mangudya is, not only with the public embracement of the currency, but also with the fact that the coins have helped correct prices of many products and services that were unnecessarily high.
For example, the price of bread has gone down to about $0,80 a loaf from US$1 thanks to the availability of the coins. Now a customer can tender a $1 buying a loaf of bread and get their $0,20 change or can buy an item that costs $0,75 with $1 and get their 25 cents change.
Indeed, small change looks negligible but is fundamental in oiling the engine which a country’s economy is. And also, the collective, long term loss that customers incur when prices are always rounded upwards can be quite staggering.
We look forward to more widespread use of the coins.
With what has been achieved so far, we are positive that the government’s message that the coins do not signify a possible return of the local currency has been understood.
The fears were misplaced in the first place as authorities had made it clear that the Z$ will not return soon given the economic situation that evidently cannot support it. The ongoing demonetisation of the old currency must have gone a long way too in driving that point home.
It must be noted however that while the coins have stimulated some price correction, we are of the opinion that there is much more to be done for the cost of products and services to really go down to where they should be.
Bond coins will not achieve this on their own, but a change of mindset among businesspeople and of course, other cost drivers over which business has no control, coming right.
Bongani Ndlovu
Online Reporter