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Bond notes: a question of trust

Alex T. Magaisa

In the movie, Shawshank Redemption, when Andy Dufresne wants a rock-hammer, he approaches Red, the inmate who is renowned for his ability to procure anything into the prison walls. At first, Red is concerned that Andy Dufresne wants to get a weapon into prison. As it is riskier, he raises his fee from the normal twenty percent mark-up on the price of the item. Eventually, with the rock-hammer costing $7, they settle on $10 for the transaction. Red would earn a $3 gross profit.

However, getting the rock-hammer into prison involves a series of transactions. Red has to shoulder costs of smuggling the item into prison – bribes have to be paid. Leonard, the inmate who distributes clean bed-sheets slips the rock-hammer into a pack of fresh bed-sheets, which he hands over to Red. He earns 2 packets of cigarettes.

Later, Red slips the rock-hammer between the pages of a book and passes it on to Brooks, the old librarian who is on his nightly round of distributing books to inmates. For his trouble, Brooks gets a packet of cigarettes from Red and he delivers the rock-hammer to Andy Dufresne. The entire transaction costs Red three packets of cigarettes, which the suppliers of services happily accept.

In another scene, when Heywood wins a bet against fellow inmates on whom among the new inmates will break down first, his friends pay him in cigarettes, which gives him a great amount of pleasure. In a different scene, when Red bribes a prison officer to ensure that he and his mates get a chance to work outdoors, he also slips a packet of cigarettes into the officer’s pocket.

It is evident throughout that most transactions in Shawshank Prison were paid for in cigarettes. In other words, cigarettes were the major currency in that prison. In fact, cigarettes are the common currency in most prisons. It doesn’t matter whether or not one smokes. It is the most commonly accepted currency. What prisoners have done, almost the world over, is to devise their own form of money in the absence of regular bank notes and coins. The reason why cigarettes work as money in that environment is that participants in the prison economy have accepted it and trust it. With cigarettes you can buy loyalty and protection, among other things.

In short, cigarettes were the money used in Shawshank. They are money in most prisons.

Money as myth

The key to understanding money, as Yuval Noah Harari tells us in Sapiens, The History of Humankind, is to recognise that money is a product of human imagination.

It is a myth or a fiction that people create in their collective imagination and its success depends on whether or not a significant number of people are willing and prepared to believe in the myth. Most people are accustomed to think that money is coins and banknotes. But as Harari points out, there have been various forms of money created in various places and societies throughout the course of history. Many societies have devised their own forms of money for the purposes of facilitating the exchange of goods and services. In Harari’s words, “Money is anything that people are willing to use in order to represent systematically the value of other things for the purpose of exchanging goods and services” (197). It helps in the exchange of goods or to store wealth in a convenient way. A head of cattle can be transformed into education through money when a father sells his cattle to pay school fees for his child.

Early history of money

According to Harari, an early form of money was called “barley money” – which consisted of grains of barley. At this stage, money had inherent value because barley could be used for various purposes. Something with inherent value was easier to trust for the exchange of other goods and services. This was a step away from the barter system where people exchanged goods. Barter worked in small settings where the markets were less sophisticated. It could not work in bigger markets with multiple transactions and strangers transacting between each other. However, while barley money was trusted because of its intrinsic value, it was not convenient. It needed vast storage space and the costs of transporting it were high. It could not support large-scale and complex transactions and was only suitable for small and unsophisticated economies.

However, as Harari intimates, “The real breakthrough in monetary history occurred when people gained trust in money that lacked inherent value, but was easier to store and transport” (202). Harari says the first such type was the silver sheckel, which appeared in Mesopotamia in the third millennium BC. However, they also proved inconvenient as they needed to be measured when transactions were carried out. Later King Alayettes of Lydia introduced the first coins around 640 BC – they carried weight in gold or silver and a mark of identification of the issuing authority. The mark not only testified to the value of the coin, but also served as a mark of authentication that the coin was issued by a particular political authority which guaranteed its value. In the absence of inherent value (unlike barley money), the validity of the coin depended the issuing political authority. Trust and confidence became the critical qualities of money. “As long as people trusted the power and integrity of the king, they trusted his coins”, Harari says. Trust in the money meant even two enemies could exchange goods and services using money. Cigarettes are reliable money in prisons because of the trust inmates have in the system.

To protect trust in money, the legal system created offences such as counterfeiting, which was so serious that it was punishable by torture and death. Counterfeiting was regarded as a crime against the sovereign authority.

Modern forms of money

Although coins and banknotes seem to be ubiquitous, Harari reminds us that they are actually a rare form of currency. Most money exists in other forms apart from coins and banknotes. He demonstrates that of the $60 trillion in the world, less than 10 percent ($6 trillion) is in coins and banknotes. The bulk of money (more than 90%) is in electronic form. In fact, most large transactions do not involve the transfer of physical cash. When a person is buying a house, the bank that gives him a mortgage does not give him hundreds of thousands of dollars in cash. The money is transferred electronically into his account and then onwards into the account of the seller. Just like coins were a better and more convenient form of money compared to barley money or silver sheckels, electronic money is easier to carry, transfer or store. Rather than carry bags of coins or notes, one only has to carry a bank card. This is also referred to as plastic money. However, like all forms of money, the success of electronic/plastic money depends on the extent to which people are willing to accept it for trade in goods and services.

As already intimated, money works on the basis of trust. As Harari states, “Trust is the raw material from which all types of money are minted”. He concludes that money is the most efficient and most universal system of mutual trust ever invented. Money, whether in US dollars, Rands or cowry shells is not an objective reality but something that is constructed in the mind. It’s what people collectively and in large numbers choose to believe is money. Since it is made in imagination, it can also be killed in the mind. Unlike the force of gravity, which does not depend on our beliefs, money depends on our belief that it has value. Millions of people can choose not to believe in gravity, but that will not stop this natural force. But if millions of people decide that they no longer believe in the form of money being used at any given time, that money can become extinct.

But where does this mutual trust come from? Harari argues that the source of trust in money is a “complex and long-term network of political, social and economic relations” during the course of history. Money is a good example of how a product of imagination or a myth can drive a large-scale network of cooperation. Without money, it would be difficult to establish the complex and sophisticated markets we have today. Imagine if a peasant who wants to travel to Harare from Wedza had to exchange his goats for transport services. The owner of the vehicle would have to assess the quality of the goats and find ways of keeping or transporting them. Imagine further is another passenger offered bags of maize as he has no goats and another offers fresh milk in exchange for transport. Money helps to solve these challenges. With money, you can convert goats into transport with greater ease. However, for it to work, people have to believe in the money that is used in the transactions.

As Harari points out, a person believes in a form of money because his neighbour believes in it, and the neighbour believes in it because his neighbour shares the same belief in the money. A prison inmate trusts a cigarette as money because the other prisoners believe it is money and vice versa. If you believe a particular stone is money but others do not share the same belief, it is valueless. You have to persuade a significant number of people that the stone is good money and if they accept it, the money might succeed. It’s all in the mind. When the political authority demands it in taxes and other payments and service providers accept it, then people are bound to trust it too. The US dollar is the world’s most successful currency because significant numbers of people around the world still trust it and by extension, they trust the political authority which issues it.

Bond notes

What does the above narrative on the history of money tell us in respect of bond notes? I set out the narrative so that we can have an historical background on the concept of money. It is an indictment on our education system that such basic things as money are alien to most of us, years after graduation. I have had to read extensively in recent months, to understand more about the concept of money. Understanding the concept, I believe, is vital to our broader appreciation of the phenomenon of bond notes – what they are and their prospects of success.

First, bond notes are a form of money, regardless of the government’s denials. Just like prison inmates have devised cigarettes as money, the Reserve Bank of Zmbabwe is constructing bond notes as local money within our own prison called Zimbabwe. Bond notes are being introduced as a medium of exchange for goods and services. It is unique money in that it only has value within Zimbabwe. It has no value whatsoever, outside Zimbabwe. Imagine a token issued by the local bar owner, which allows punters to play pool. It can’t be used elsewhere. But actually, this token is better because if you are tired of playing pool you can go back to the bar owner and get your money back. The government says you can exchange one bond note for one US dollar but this assumes the two forms of money will remain equivalent. The market is unlikely to agree with government on this one. Cigarettes as money work in prisons because the critical stakeholders of that local economy accept and trust them. There is no guarantee that the critical stakeholders in the Zimbabwean economy will accept and trust them.

Second, accepting that money appears in many forms apart from coins and banknotes, electronic money, which is reflected in the accounts of customers constitutes money. The fact that there are no coins or banknotes should not really be a big deal if people could transact using their electronic money. Assuming that the electronic payments system worked efficiently across all sectors, including the informal zone, there would be no need for new money as goods and services would be exchanged for electronic money. The so-called problem of change, the ostensible reason for bringing in bond money would not exist. Nevertheless, the reality is that a large number of Zimbabweans have not embraced electronic money. It’s fair to say they probably don’t believe in it. They prefer coins and banknotes. The reasons for this are numerous but as we shall see, they include a lack of trust and also, with a largely informal and rural economy, the exchange of a large number of goods and services cannot be transacted using electronic money. The vegetable vendor at the local musika does not have the technology to facilitate electronic money transactions but even if she does, she probably does not trust it. It is an economic environment where it is necessary to hold coins and banknotes.

Third, an important factor from the narrative is that the success or failure of bond notes depends on trust. It is the lifeblood of money. Do significant numbers of people trust bond notes? It may well be that driven by desperation for cash, large numbers of people might initially embrace them. If that happens, bond notes might surprise us. But for how long? Such optimism is based on the belief that the fiction of equivalence between the US dollar and bond note is sustainable. This is highly unlikely as current indications are that people do not have the same trust in electronic money as they have in the US dollar. Let us look at electronic money as an example: some fuel stations are selling fuel at a discount to customers who can pay cash. This means already the value of US dollars is regarded by key players in the market as higher than electronic money even though the government says there is no difference. Major supermarkets are also reportedly selling cooking oil in cash only. The market, whose belief is fundamental to the success of money has already identified a difference between cash and electronic money. It is safe to assume that the market will have a similar verdict between US dollars and bond notes.

Some say but the market had no problems accepting and trusting bond coins, introduced more than a year ago. Bond coins did not impact on people’s wealth. Going by this narrative, people were willing to accept and trust bond coins, but there is no guarantee that they will similarly trust bond notes on a wider scale.

Trust in political authority

As we have already noted, historically, from the beginning, the mark on coins was one of validation and authentication in relation to the issuing authority. If people trusted the political authority, they were likely to trust his coins. Trust in the political authority issuing currency is therefore fundamental. This is an area where the Zimbabwean political authority falls woefully short. People lost trust in the Zimbabwean government’s ability to manage monetary affairs in the 2007-08 hyperinflationary crisis. Many lost a great deal during that period. By the time the government dumped the Zimbabwe dollar in February 2009, the market had already abandoned it. They had switched their trust from the Zimbabwe dollar to the US dollar and other regional currencies.

Politically, and President Mugabe and ZANU PF won’t like to hear this, people had switched their trust from the local political authority to the US political authority which issues the US dollar. Locally, what had happened was that the people had lost trust both in the Zimbabwe dollar and the political authority, which was reflected in the 2008 election when President Mugabe and ZANU PF lost to Morgan Tsvangirai and the MDC. The bond note faces a similarly dire situation. It is being introduced at a time when the political authority in Zimbabwe is losing trust. If people cannot trust the political authority behind the bond note, it will be hard for them to trust the bond note. This lack of trust is partly why the RBZ has been at pains to explain that the bond note is backed by Afrexim Bank. They know people don’t trust them, so they are seeking to rent the trustworthiness of Afrexim Bank.


I started with the example of cigarettes in a prison setting to demonstrate that money takes many forms, but that the success of money depends on the willingness of a large number of people to accept it as a medium of exchange. On this basis, the bond note might well succeed if people embrace it as government wants them to. However, there are too many factors militating against this prospect. As we have observed, the key ingredient of money is trust. Money is a myth/fiction/imagined reality whose existence and value lies in our collective imagination and the extent to which we are prepared to believe it. If there is no trust among a significant number of people, any form of money will fail.

But trust is both in the money and the issuing authority. Do Zimbabweans have enough trust in the government and the bond note? That remains to be seen. Based on this narrative, while government has refused to take the bond note to a referendum, in practical terms, its introduction will nevertheless trigger a referendum on trust in government. People will vote either “yes” or “no” to the bond note, depending on whether or not they embrace it. It could be a master-stroke if the bond note succeeds, or a complete disaster, if it fails.

In the prison of Shawshank, cigarettes worked pretty fine. It’s not certain that bond notes will work in Zimbabwe’s confined conditions.


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