RBZ's cash-back headache

A directive by the Reserve Bank of Zimbabwe (RBZ) for retailers to cap cash-back facilities at $20 a day will not resolve the cash crisis, analysts said on Friday, advocating the introduction of the South African rand as a trading currency.

In statement on Thursday, the RBZ ordered that any cash-back facility offered by either retailers or wholesalers should not exceed $20 in a last throw of the dice to address the cash shortages plaguing the economy.

This came after the central bank had slammed "ungrateful" foreign businesses operating in the reserved sectors of the economy for hoarding cash.

However, economists said RBZ was addressing the symptoms and not the problems.

"What the Reserve Bank is doing does not mean anything. Obviously, there is a cash crisis so that can be used as a cash rationing method but not necessarily to stop cash hoarding.

"People are hoarding the United States dollar because it has real value and bond notes for the purposes of going to the parallel market," said Kipson Gundani, Buy Zimbabwe chief economist.

"We need to address the fundamental problems, otherwise we will continue to be in this political wilderness.

"If you want a monetary solution that will ease this situation, to me there is no other better way than adopting the South African rand."

Cash hoarding has largely been attributed to the depleting nostro balances which have seen business owners who have cash businesses looking for alternatives to pay foreign suppliers.

Banks hold between 70% and 75% of the currency in circulation while the central bank holds between 25% and 30%.

According to statistics from the Bank of International Settlement (the bank of central banks), deposits held by Zimbabweans in offshore banks was increasing, and is currently above $600 million.

Economist and scholar Ashok Chakravarti said while he sympathised with the central bank, the banks' regulator had to deal with the problem and resolve the cash crisis.

"Our situation is that we have a very poor supply of dollars from our exports and other sources," he said.

"So consequently, the market is starved of currency. So these monetary policies might provide temporary relief, but will not solve the problem.

"We have to de-dollarise and this means we have to remove United States dollars from circulation and keep it in the banking system and replace the dollars as a currency in circulation with the South African rand."

Other individuals involved in cash hoarding, as one cash dealer told Standardbusiness, are mainly those who trade bond notes for United States dollars.

Investigations showed there has been a large uptake in bond notes in the parallel market as individuals and companies look for the elusive dollar.

Among informal traders, about 53% are estimated to be keeping cash at home.

Internationally, best practices are that 15% of total deposits should be in circulation meaning Zimbabwe needs $900 million to be adequately liquefied.

At the moment, less than a third of that is in circulation, triggering the shortage in cash despite an aggressive push by RBZ for the use of plastic money.

Economist Tony Hawkins said cash hoarding could not be stopped when people had mistrust in government or the central bank.

"By trying to stop people from holding currency, you are really saying that it is the safest thing to hold," he said.

"We are moving towards a point where we are going to have to make some serious decisions about de-dollarisation and moving to some new currency."

Technically, the country is not dollarised as it uses a multi-currency system. But, the dependence on the dollar has led to other currencies being kicked out of the market and thus the dependence on the US dollar.

Dollarised economies such as Panama and Ecuador are successful as the United States is their biggest trading partner.

For Zimbabwe, trade with South Africa constitutes 60% of total trade in the country, making it the biggest partner to Zimbabwe.

However, Retailers Association of Zimbabwe president Themba Ndebele said he agreed with the move to curb the cash-back facility.

"In my view, there should never be a cash-back in a supermarket," he said.

"Why should you run a parallel banking system when there is actually no cash in the country?

"And what controls do you have to know how much cash is in circulation when you have unlicensed institutions issuing out cash?" he said.

"The retailers are not banks, so people should not go and withdraw money from retailers.

"We should be asking ourselves that [while] we use the United States dollar, is it a competitive exchange rate for the country to export?

"Because when we are using the United States dollar, you cannot print it so you have to generate it."

The central bank and government have cited the common market area as a reason for not adopting the rand, which economists have argued is not a valid argument.

The common market area entails joining Swaziland, Namibia and Lesotho by adopting a local currency that is backed by the rand.

Chakravarti said introducing a local currency was not necessary as all that was needed was realignment of monetary policies to make the rand the transactional currency and the dollar the anchor currency.

He said once the rand was adopted, the government could limit dollars to foreign currency accounts to plug externalisation loopholes.