No end in sight to Zimbabwe cash crisis

A conversation between old friends: "Mr Moyo, how are your children and where are they?" Moyo responded: "Eldest son is in Steward Bank. His wife is at POSB. "Second son is at NMB and his wife is at CABS. Youngest son who is not yet married is in ZB." Another question: "So they are all bankers?" Moyo responded: "They are in bank queues."

This is a joke that has been circulating on social networking platforms, speaking to the current gravity of the cash crisis, which is showing no signs of going away.

So dire has the situation become that depositors at some banks such as Cabs, the country's second biggest financial institution by deposits as at December 31 2015, are now joining queues as early as 3am to be able to withdraw money.

Depositors at the bank are given queue position holding numbers written on cards.

The cards are their "passports" to withdrawing money from the automated teller machines.

On Friday, depositors who had gone looking for money at a CABS branch along Jason Moyo Avenue in Harare, had by 9am been told to leave the queues and go home because money had run out.

There were two queues at the branch: one for senior citizens above 60 years of age and another for the younger customers. On this day 145 withdrawal cards had been issued for the senior citizens while the rest shared 140 cards.

Elsewhere along Leopold Takawira Street, at a POSB branch, the queue was short — not that money was being disbursed smoothly, but because there was simply no money at the bank and there was no need to hang around there.

The few people that remained in the queue were desperate cases that hoped against hope that money would eventually come.

The cash shortage in Zimbabwe has refused to die despite the introduction of bond notes into the system in November last year.

Meanwhile, cash-back facilities are now hard to come by at major retailers such as supermarkets.

TM Pick n Pay is only giving out cash to shoppers that buy goods worth $20 and above. At Food World a ratio of 1:1 applies, meaning that a customer can only get the same amount he or she would have spent in the shop, but still, there is a ceiling of $50.

So dire is the situation that some EcoCash agents are now cashing in on the shortage by taking advantage of set commission rates.

An EcoCash agent in the city told Standardbusiness on Friday that he was now doing cash-outs strictly for amounts of $3, $6, $11, $22, $34, and $80 to maximise on commission.

"It's a game of commission," the agent said, adding, "the more cash-outs I do, the more I make as commission at the end of the month".

"The commission you get on a lower and upper value are the same. In this case, the commission one gets on $3 and $5 is the same so it's better to give someone $3 so as to do more transactions.

"For $3 and $5, the commission is 8 cents. In this case if you have $5 in the wallet, it is better to give someone $3 then get 8 cents commission and give another $2 and get 4 cents commission. This will give you 12 cents commission"

"On cash-in transactions, one can also maximise commission by doing transactions in batches.

"For instance, if one wants to put $500 in the wallet, the agent can do 10 transactions of $50 each thereby maximising their commission," the agent said.

An economist Prosper Chitambara said the demand for and therefore, shortage of cash was due to lack of confidence in the banking system and the informalisation of the economy.

However, he said the situation was likely to improve at the onset of the tobacco marketing season.

"It [cash situation] will improve because of the tobacco but it will not solve the problem," Chitambara said. The 2017 tobacco marketing season starts on Wednesday.

Chitambara said the cash shortages might force government to increase the supply of bond notes.

"That can happen. Civil servants need to be paid their bonuses and it is not clear where that money will come from," he said.

Another economist said the exchange rate between the bond notes and the US dollar continued to widen despite central bank's insistence that bond notes were at par with the US dollar.

"That alone shows that the situation is dire. The scarcity of the [US] dollars aptly illustrates the saying that bad money drives out good money," he said.

Monetary authorities are promoting the use of plastic money to reduce the demand for cash.

But why would people be holding on to cash?

According to economist John Maynard Keynes, people hold cash for three reasons — transaction, precautionary and speculative motives.

The cash crisis has spawned multiple pricing where discounts are given for cash transactions.

In addition, due to the informalisation of the economy, many people buy from the informal sector which has not yet embraced plastic money, hence the demand for cash.

Cash is also seen as a form of investment and also held for safety reasons.

The speculative motive occurs where one holds cash in the hope of making a profit in future.