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The Reserve Bank of Zimbabwe will this month bring into circulation coins, backed by a bond, to ensure availability of smaller units for divisibility of the US dollar when transacting. The central bank will, concurrently with the introduction of the bond coins minted in South Africa, also import coins worth 30 million rand to improve availability of small denominations.

RBZ Governor Dr John Mangudya said initially, the bond coins — denominated in 1 cent, 5 cents, 10 cents and 25 cents — will be brought into circulation through banks from the 18th of this month.

Dr Mangudya, however, said the greenback would remain in use until Zimbabwe develops sufficient productive capacity and achieve all fundamentals key to anchoring own currency.

The central bank chief said an additional denomination of 50 cents would be introduced in March next year, as it required more sophisticated security features due to its higher value.

Dr Mangudya said he expected the prices of goods and services, hitherto mostly pegged from $1 to come down, as the dollar would now be easily divisible into small units for change.

“The economics of the coins is that they are being introduced to buttress the multiple currency system through the provision of change, especially for the US dollar notes,” he said.

He added that the greenback had the smallest unit in the country, with most prices pegged from $1 while people were forced to buy products they did not want due to shortage of change.

Consumers are forced to take products such as sweets or vouchers, in instances where small change is not available, only redeemable at the branch the vouchers would have been issued.

“The Reserve Bank is therefore addressing the divisibility and store of value of money through the initiative, which has already received significant support from Consumer Council of Zimbabwe, business organizations and financial institutions,” Dr Mangudya said.

The bond coins would be at par with the original US cents. “This is necessary to complete the divisibility series of the dollar for the benefit of both consumers and businesses,” he said.

The central bank chief said the bond coins would go a long way in addressing the lopsided pricing structure in Zimbabwe, which had seen consumers bearing the brunt of high prices.

“Our expectation is that the introduction of bond coins would necessitate correct pricing for goods and services, which hitherto was constrained by the absence of appropriate system of coins.”

The RBZ boss said it was in the interest of business to correct their pricing regimes to enhance affordability of products, adding that failure to do so would fuel imports as Zimbabwe was an open economy.

Consumers and businesses will be able to exchange the coins for notes at banks. However, circulation of the bond coins will only be limited to the boundaries of Zimbabwe.

Dr Mangudya said the initial $10 million worth of the bond coins, backed by a $50 million dollar denominated bond, translated to 2 percent of the total bank deposits in the country.

He said for transparency and accountability, the RBZ shall ensure that the entire process is subject to public scrutiny and that the value and volumes of coins are audited by reputable entities.

The governor said the introduction of the bond coins was not disguised reintroduction of the local unit, scrapped in 2009 due to hyperinflation, as that would be “economic suicide”.

The RBZ governor added that while other countries dollarized to an average 80 percent to leave room for printing of local currency for change, Zimbabwe dollarized almost in full.

Source : The Herald