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The Legal Nature of Bond Notes in Zimbabwe

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The Legal Nature of Bond Notes in Zimbabwe The legal nature of bond notes in Zimbabwe L.N Takaedza LLB Orcid.org 0000-0001-8616-4054 Dissertation submitted in partial fulfillment of the requirements for the degree Magister Legum in International Trade Law at the Potchefstroom Campus of the North-West University Supervisor: Prof S.F du Toit Graduation: May 2019 Student number 29795389 Acknowledgements Words are not adequate to show the extent of my gratitude to those who are owed the successful completion of this dissertation. Be that as it may, I shall endeavour to do so hereunder. I am sincerely grateful to Professor Sarel F du Toit for his guidance, clarity of responses and insightful comments from the inception of this work up until its fruition. I am also grateful to the North-West University, Potchefstroom Campus for the financial support which made the authoring of this research possible. My deepest gratitude and thanks to Mr Joel Zowa for the valuable ideas and for his encouragement. My sincere thanks and appreciation go to Munyaradzi Mpofu, my husband. I am eternally grateful for your undying support, patience and encouragement without which all my efforts would count for nought. And last but not the least, I owe my entire existence to the Almighty. i Abstract The legal field of money and currency is one of the most complex fields of law. Issues of creation of money and its regulation have largely been left to sovereign nations with little interference at international level. As a result, almost all nations across the world have each their own currencies which they regulate to be acceptable in those nations as legal tender, unit of account and store of value or wealth. The economic meltdown encountered in Zimbabwe led to the government of this country introducing various monetary measures in an attempt to deal with the currency crisis experienced as a result thereof. Bearer cheques were introduced first but that did not solve the crisis. In 2009, the Government introduced multi currencies which were dominated by the United States dollar (US$) and later legally demonetised its own currency, namely the Zimbabwe dollar in 2015. It seemed as if the currency crisis had been resolved until early 2016, when the country began experiencing severe cash shortages, despite its cash economy. In an endeavour to mitigate the cash crisis, the Government, through its central bank, announced the introduction of bond notes. The bond notes are said to be not a return of the local currency but are surrogate to the US$. This posed the question which was interrogated in this study: To what extent are bond notes effectively regulated in Zimbabwe and regarded as legally acceptable payment in Zimbabwe and other countries? ii Key words 1. Bond notes 2. Currency 3. Central bank 4. International Monetary Fund 5. Money 6. Regulation 7. US$ iii Table of Contents Acknowledgements ............................................................................................ i Abstract ....................................................................................................... ii Key words ...................................................................................................... iii Table of Contents ............................................................................................. iv Chapter 1 – Introduction and problem statement ...........................................1 1.1 Introduction ...................................................................................1 1.2 Problem statement ........................................................................1 1.3 Research purpose ..........................................................................3 1.4 Research methodology ..................................................................3 1.5 Outline of the research ..................................................................4 1.6 Currency crisis................................................................................5 Chapter 2 – Theories of money and the role of the State in the Regulation of currency ...................................................................7 2.1 Introduction ...................................................................................7 2.2 Theories of money .........................................................................7 2.2.1 The State Theory .................................................................................. 7 2.2.2 The Societary Theory ............................................................................ 8 2.2.3 The Institutional theory ......................................................................... 9 iv 2.3 The role of the Reserve Bank ...................................................... 10 2.4 Historical overview of the Zimbabwe economic and financial meltdown .................................................................................... 11 2.4.1 The principle of nominalism ................................................................. 13 2.4.2 The relevant legislative provisions leading to the introduction of multi-currencies and subsequent demonetization of the Zimbabwe dollar ................................................................................................. 15 2.4.2.1 The demonetisation of the Zimbabwe dollar ......................................... 16 2.4.2.2 The introduction of bond notes ............................................................ 16 2.4.2.3 Excursus: challenge to bond notes ...................................................... 19 2.5 Conclusion ................................................................................... 19 Chapter 3 – Regulation of monetary affairs under International Law .......... 21 3.1 Introduction ................................................................................ 21 3.2 The International Monetary Fund (IMF) .................................... 22 3.2.1 Background ........................................................................................ 22 3.2.2 The IMF Articles of Agreement ............................................................ 22 3.3 The World Bank ........................................................................... 26 3.4 The new Global Financial Architecture ....................................... 26 3.4.1 G-20 .................................................................................................. 27 3.4.2 Financial Stability Board (FSB) ............................................................. 30 3.5 Financial and monetary regulation under SADC ......................... 31 v 3.6 Optimum Currency Area ............................................................. 33 3.7 Conclusion ................................................................................... 34 Chapter 4 – The legal nature of bond notes .................................................. 36 4.1 Introduction ................................................................................ 36 4.2 The Reserve Bank of Zimbabwe Act ........................................... 36 4.3 Fiat money versus virtual currencies .......................................... 38 4.3.1 Fiat money ......................................................................................... 39 4.3.2 Virtual currencies ................................................................................ 40 4.4 The convertibility of currency ..................................................... 43 4.5 Currency manipulation ............................................................... 46 4.6 The obligations of other countries to recognise bond notes as Zimbabwe’s currency ............................................................. 47 4.7 Conclusion ................................................................................... 48 Chapter 5 – Conclusion and recommendations ............................................. 49 5.1 Introduction ................................................................................ 49 5.2 Summary of chapters .................................................................. 49 5.3 Recommendations ...................................................................... 51 5.3.1 Acceptance of virtual currencies .......................................................... 51 5.3.2 Introduce its own currency .................................................................. 52 5.3.3 Join a monetary union ........................................................................ 52 vi 5.4 Final conclusions ......................................................................... 53 BIBLIOGRAPHY .............................................................................................. 54 Case law .................................................................................................... 56 Legislation .................................................................................................... 57 International Instruments ............................................................................. 57 Internet sources............................................................................................. 57 vii LIST OF ABBREVIATIONS CMA Common Monetary Area FSB Financial Stability Board IMF International Monetary Fund RBZ Reserve Bank of Zimbabwe SADC Southern African Development Community UN United Nations US$ United States dollar WB World Bank ZW$ Zimbabwe dollar viii Chapter 1 – Introduction and problem statement 1.1 Introduction The legal field of money and currency is a complex one. Almost every country in the
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