Business / Economy
Shortage of dollars a sign of lack of confidence, says RBZ
23 Apr 2017 at 13:57hrs | Views
Reserve Bank of Zimbabwe deputy governor Kupukile Mlambo says shortages of the United States dollar locally are caused by lack of confidence in the country's economy.
Zimbabwe has been facing serious cash shortages since 2015 and the introduction of bond notes late last year has failed to reverse the tide.
"We really have a shortage of dollars in our economy," Mlambo said.
"There was $940 million of Zimbabwean money held legally outside Zimbabwe as at December 31 2016. This is a sign of lack of confidence in our economy."
He said the cash to deposit ratio had been declining from a peak of 35% in 2015 to 5% last year.
"In 2010, the cash to deposit ratio was at 35% and most economies in Africa, they are at about 10 to 15% and in 2015-2016 we were at about 5%," he said.
"It coincides with the lower growth. In 2010 to 2013, we had growth and there was confidence in the economy.
"We begin to experience cash crisis when our cash to deposit ratio goes below 10%.
"Yet for the economy to function, we need at least 10% in cash to deposit ratio."
Total banking sector deposits were $6, 51 billion as at December 31.
This means that the economy requires $650 million in cash.
The economy has been sustained by $124 million in bond notes and coins following the vanishing of the dollar from the official channels.
Economist Ashok Chakravarti said last week the increase in cash hoarding and cash seeking practices were merely symptoms and not solutions to the problem.
"You have to realise that Zimbabwe is a market economy just like any other developing economy," he said.
"The days are gone when you could have a central government which controlled all economic activity; that model is now defunct."
Chakravarti said they were trying to reform the mind-set of ministries that controls were not the answer in his capacity as a consultant on the Ease of Doing Business department in the Office of the President and Cabinet.
Harare-based economist Prosper Chitambara said the cash shortages were caused by the disparity between bond notes and the United States dollar.
"I think that a number of economic agents are taking advantage of the arbitrary problems which are in the market," he said.
"Market valuation has been affected by the bond notes as they hold no value outside of Zimbabwe, so as long as you have this problem, more and more people will continue with these cash-seeking practices."
Zimbabwe has experienced numerous cash shortages in the last two decades and the worst was in 2009 when the country was forced to abandon its own currency due to inflation.
Source - the standard