• Mangudya's tenure as has been widely criticized for his handling of monetary policies, inflation, and financial stability, making him one of the poorest-performing governors in Africa
• The introduction of the Bond Notes failed to alleviate the cash shortage and stimulate the economy, while the reintroduction of the Zimbabwe dollar resulted in hyperinflation
• The foreign currency auction system faced inefficiencies and delays in fund payments, contributing to inflationary pressures

Harare- Dr. Panonetsa John Mangudya, the current Central Bank governor, is set to step down from his position in April 2024, marking the end of his 10-year tenure. Taking his place will be John Mushayavanhu, the Chief of FBC Holdings. It remains to be seen whether the newest John will bring any notable changes to the economy, failed by Mangudya. However, following the conclusion of his tenure, Mangudya will embark on a new leadership role in the Mutapa Investment Fund, a complex and challenging field.

Contrary to the further expectations placed upon him by government, Mangudya has been widely regarded as one of the poorest performing governors, not only within the borders of the nation he serves but also in comparison to other African counterparts given how he tackled monetary policies, inflation and financial stability. This has raised concerns about the effectiveness and functionality of the Mutapa Investment Fund, as Mangudya's skepticism calls into question its potential success. The prospect of having two individuals with a track record of failure, Mr. John Bond and Chipo Mutasa, serving in key positions within the Fund further reinforces the notion that it may face numerous challenges and setbacks.

Mangudya's tenure  has been marked by significant failures in three crucial areas: currency stability, financial stability, and fostering economic growth and employment. When he assumed office in 2014, Zimbabwe’s inflation was below 2%. However, within a span of just five years, the country descended into hyperinflation more than once. In addition to the troubling inflationary episodes, between 2019 and 2020, Zimbabwe's GDP experienced a decline, resulting in a technical recession.

Mangudya has gained notoriety for his inability to effectively address price and financial stability, resulting in record-high interest rates and inconsistent policy enforcement. His performance has been widely criticized, leading to significant negative consequences. In a notable recognition of his shortcomings, in 2021, Mangudya was ranked as the worst central bank governor in Africa by Global Finance magazine, receiving a grade of C. This ranking further underscores the prevailing sentiment regarding his performance and highlights the magnitude of the challenges faced under his leadership.

Introduction of Bond Notes

One significant aspect associated with Mangudya's tenure was the introduction of the Bond Note, a surrogate currency implemented in November 2016. The rationale behind its introduction was to address the severe cash shortage and stimulate the economy by incentivizing exporters. The Bond Notes were intended to be equivalent in value to the United States dollar and were backed by a bond facility with Afreximbank. However, the promise of the Bond Notes being on par with the US dollar never materialized.

In a society facing a scarcity of cash, the government saw an opportunity to introduce its own currency and divert US dollars from the public into its own coffers. Businesses were promised Bond Notes in exchange for the US dollars they held tallied at 1:1. However, this scheme turned out to be a scam, as the Bond Note failed to fulfill its three primary roles as a medium of exchange, store of value, and unit of account. Lacking economic fundamentals to support its value, the Bond Note caused more complications rather than alleviating the situation. The 5% incentive offered for exchanging US dollars led to an excessive supply of the currency in the market.

Plagued by inflation, the Bond Note faced widespread rejection, and by 2020, the coins were no longer in circulation, while the 2-dollar and 5-dollar notes encountered significant resistance. The Bond Notes proved to be a scheme orchestrated by the government to deceive the public into exchanging real money for essentially worthless currency.

Reintroduction of Zimbabwe Dollar

The reintroduction of the Zimbabwe dollar as the sole legal currency of trade after a decade of abandonment proved to be a disastrous decision, widely regarded as one of the worst mistakes in Mangudya’s history. The currency was brought in due to a severe shortage and high demand for the US dollar. Initially, it was pegged at par with the US dollar and other currencies were banned. However, within a month, the exchange rate spiraled to US$1 to ZWL 36, reminiscent of the hyperinflationary period experienced in 2008. By mid-2019, the country witnessed an annual inflation rate of 500%, which further escalated to 800% by July 2020. Hyperinflation persisted in 2021 and 2023 under Mangudya's leadership, solidifying his reputation as one of the worst governors in history.

Realizing the dire state of the economy, the regime eventually reversed course and welcomed the use of US dollars again, barely a year after banning them. This decision reflected the recognition of the failure of the Zimbabwe dollar and the need for a more stable and reliable currency though publicly denied.

Foreign Currency Auction System

One of the notable contributions to Zimbabwe's economy by John was the introduction of the foreign currency auction system in June 2020. The system aimed to provide funding to exporters with foreign currency. However, due to a significant negative trade balance, limited foreign direct investments (FDIs), and pervasive corruption, the system faced challenges and was inadequately funded. As a result, companies had to resort to the black market to find leverage and access foreign currency. The system's inefficiencies led to significant delays in the payment of funds, with delays of up to seven weeks being reported. This created an arbitrage opportunity as exporter sought dollars on the parallel market at inflated prices.  Hence, the system contributed to inflationary pressures, despite the disparity and volatility of the exchange rate. While the foreign currency auction system was intended to address the funding needs of exporters, its underfunding, inefficiencies, and lack of market-driven exchange rates resulted in challenges and unintended consequences for Zimbabwe's economy. Excessive manipulation of the auction is still a major challenge to date creating a premium of over 50%.

Record Interest Rates

In October 2021, the Central Bank of Zimbabwe implemented a series of significant increases in benchmark interest rates. The rates were raised to 40%, further increased to 60% in March 2022, 80% in April, and a staggering 200% in July 2022. However, these rates were later revised downward to 140% and then 150% in 2023. Despite these drastic measures, inflation continued to rise unabated. By December 2022, the exchange rate for the US dollar had increased by over 50%, going from approximately ZWL 600 per dollar to ZWL 1200. The high interest rates implemented by the central bank only resulted in a liquidity squeeze for companies, hampering their ability to improve production.  The intention behind the interest rate hikes was to curb inflation and stabilize the currency. However, the measures proved to be ineffective in achieving their desired outcomes and instead exacerbated the challenges faced by businesses and the economy as a whole.

Therefore, John Mangudya's tenure as the Governor of the Reserve Bank of Zimbabwe has been marked by significant failures. His handling of monetary policies, currency stability, and financial stability has resulted in economic and currency crisis. His performance has been widely regarded as one of the poorest among central bank governors, raising concerns about the effectiveness of the Mutapa Investment Fund, where he will assume a new leadership role.