News / National
Zimbabwe cash crisis spirals out of control
15 Aug 2019 at 07:28hrs | Views
IT is an August morning in Harare. Winter winds are blowing cold. Samuel braves the cold, wakes up at 3am from his Kuwadzana home and treks to the central business district to look for cash at the bank.
Upon arrival, he is given a piece of paper inscribed position 66 by a security officer manning his bank's branch along Jason Moyo Street.
As he stands there, the biting cold chilled his fingers into clumsy numbness; cold seeped into his toes and spread painfully throughout his feet.
Within some minutes, the snaking queue had more than 300 people, all battling the cold of the last day(s) of winter.
He joins other citizens who were cuddling rags, in empty cardboard boxes and waiting for the bank to open at 8am.
Samuel got the shock of the day when the security officer communicated that the bank only had cash for 50 people for that day.
"I am heartbroken. After waking up early to get to the queue and wait here for four odd hours, I can't get my cash.
I cannot take this. What is the purpose of opening a bank account when they can't deliver the service? he asked rhetorically.
What's painful is that he had to part with 40% in an electronic transaction from his meagre salary to access hard cash from cash traders in the streets of Harare.
To break this down, if one has $100 in their account, they can only collect $70, losing $30 in the process.
Among the people who failed to access cash was Marble, a heavily pregnant woman who cold-licked at her face and crept under her clothes. She had no kind words for the current government.
"I don't understand why this thing can continue in the New Dispensation. The President (Emmerson Mnangagwa) promised to deal with this when he came to power, but still we are still suffering," she said.
The cash situation is still one of many undelivered promises by Mnangagwa's government. When he was sworn-in in November 2017, Mnangagwa promised to solve the problem.
The cash crisis joins a long list of serious deficits facing Zimbabweans, among them unemployment, price hikes, water and power problems, all of which border on human rights violations.
Zimbabwe will be remembered as a nation of queues. Apart from the long winding queues for cash, citizens also make snaking queues for Zupco buses, passports, bread and fuel. The inconvenience and dehumanising experience now familiar to citizens makes the country one of the worst destinations globally in which to do business.
The current cash crisis not only affects citizens' ability to transact, but also dent their confidence in the banking sector and economy at large.
The biting cash crisis has seen the mushrooming of many cash barons on the streets. These people are trading cash openly and in full glare of law enforcement agents. This has become a common sight on every street. It has become normal.
Telecoms companies have in vain threatened to deregister agents selling cash.
While monetary authorities have been encouraging the adoption and use of plastic money, the reality on the ground is that cash is still a dominant form of transacting in Zimbabwe.
Commuter omnibus and other transport operators do not accept any other form of payment except cash. Businesses give discounts when their clients use cash to transact. Many shops in downtown Harare sell their goods in cash at lower prices than those in the mainstream.. As such, citizens still itch to get some cash. Many shops are also complicit in supplying the black market with cash.
The cash crisis started in 2016, a result of excessive money creation through Treasury Bills and overdrafts. Soft money, therefore, became dominant to the detriment of physical cash.
These distortions have had huge implications in the economy.
Since then, authorities have failed to stem what has now become a chronic cash crisis.
Zimbabwe Chamber of Commerce chief executive Chris Mugaga said while authorities were fighting to calm inflation by constraining money supply, the stock of cash in the economy was way too low.
"Zimbabwe is the only country in the world that introduces a currency without printing the notes and coins.
Generally, cash must be 15% of the total money circulating in the economy. But the central bank said it is doing inflation-targeting by restricting money supply growth. But the stock of coins and notes is very low. This crisis is much bigger than we see. There is a misconception that if we don't print cash, the exchange rate will go down," Mugaga said.
Authorities scrapped the multi-currency regime in June and adopted a local currency.
Last month, the central bank promised to print $400 million in bond notes to top up the existing $400 million, which it says will be drip-fed into the economy to cover the gap left after government banned the use of multi-currencies in local transactions.
As of end of last year, the economy had $10,32 billion total deposits. With this in mind, the economy would need at least $1,5 billion cash in circulation.
Economist Clemence Machadu said the continuous charging of usurious premiums as high as 40% to get cash is an unequivocal demonstration that there is need for thorough policy action, strengthening of systems and fostering discipline in line with the new currency architecture.
" Firstly, monetary authorities need to define whether the levels of physical cash is adequate, especially after the de-dollarisation exercise which also saw billions of RTGS$ balances being withdrawn, thereby increasing the demand for cash. There are also rent-seeking practices by some economic agents who sell their goods and services in cash and then sell the cash at a premium, instead of banking it to allow others to access it. This then creates difficulties for the financially excluded, especially rural folks who rely on cash for most of their transactions, and also reduces their disposable income as a chunk of it goes to premiums. In this corruption-ridden environment, some economic agents who are involved in clandestine deals also hold onto huge quantities of cash, which they then use to avoid leaving a paper trail, and this also impacts the circulation flow," he said.
Economist Prosper Chitambara weighed in, saying selling cash was abetting in growing the cost of doing business in Zimbabwe.
"Another thing is because our economy is highly informalised, most of the cash is not circulating in the formal channels. The idea of paying a premium to get cash is not sustainable in the economy. These arbitrage and rent-seeking behaviours increase the cost of doing business in the country," he said.
Upon arrival, he is given a piece of paper inscribed position 66 by a security officer manning his bank's branch along Jason Moyo Street.
As he stands there, the biting cold chilled his fingers into clumsy numbness; cold seeped into his toes and spread painfully throughout his feet.
Within some minutes, the snaking queue had more than 300 people, all battling the cold of the last day(s) of winter.
He joins other citizens who were cuddling rags, in empty cardboard boxes and waiting for the bank to open at 8am.
Samuel got the shock of the day when the security officer communicated that the bank only had cash for 50 people for that day.
"I am heartbroken. After waking up early to get to the queue and wait here for four odd hours, I can't get my cash.
I cannot take this. What is the purpose of opening a bank account when they can't deliver the service? he asked rhetorically.
What's painful is that he had to part with 40% in an electronic transaction from his meagre salary to access hard cash from cash traders in the streets of Harare.
To break this down, if one has $100 in their account, they can only collect $70, losing $30 in the process.
Among the people who failed to access cash was Marble, a heavily pregnant woman who cold-licked at her face and crept under her clothes. She had no kind words for the current government.
"I don't understand why this thing can continue in the New Dispensation. The President (Emmerson Mnangagwa) promised to deal with this when he came to power, but still we are still suffering," she said.
The cash situation is still one of many undelivered promises by Mnangagwa's government. When he was sworn-in in November 2017, Mnangagwa promised to solve the problem.
The cash crisis joins a long list of serious deficits facing Zimbabweans, among them unemployment, price hikes, water and power problems, all of which border on human rights violations.
Zimbabwe will be remembered as a nation of queues. Apart from the long winding queues for cash, citizens also make snaking queues for Zupco buses, passports, bread and fuel. The inconvenience and dehumanising experience now familiar to citizens makes the country one of the worst destinations globally in which to do business.
The current cash crisis not only affects citizens' ability to transact, but also dent their confidence in the banking sector and economy at large.
Telecoms companies have in vain threatened to deregister agents selling cash.
While monetary authorities have been encouraging the adoption and use of plastic money, the reality on the ground is that cash is still a dominant form of transacting in Zimbabwe.
Commuter omnibus and other transport operators do not accept any other form of payment except cash. Businesses give discounts when their clients use cash to transact. Many shops in downtown Harare sell their goods in cash at lower prices than those in the mainstream.. As such, citizens still itch to get some cash. Many shops are also complicit in supplying the black market with cash.
The cash crisis started in 2016, a result of excessive money creation through Treasury Bills and overdrafts. Soft money, therefore, became dominant to the detriment of physical cash.
These distortions have had huge implications in the economy.
Since then, authorities have failed to stem what has now become a chronic cash crisis.
Zimbabwe Chamber of Commerce chief executive Chris Mugaga said while authorities were fighting to calm inflation by constraining money supply, the stock of cash in the economy was way too low.
"Zimbabwe is the only country in the world that introduces a currency without printing the notes and coins.
Generally, cash must be 15% of the total money circulating in the economy. But the central bank said it is doing inflation-targeting by restricting money supply growth. But the stock of coins and notes is very low. This crisis is much bigger than we see. There is a misconception that if we don't print cash, the exchange rate will go down," Mugaga said.
Authorities scrapped the multi-currency regime in June and adopted a local currency.
Last month, the central bank promised to print $400 million in bond notes to top up the existing $400 million, which it says will be drip-fed into the economy to cover the gap left after government banned the use of multi-currencies in local transactions.
As of end of last year, the economy had $10,32 billion total deposits. With this in mind, the economy would need at least $1,5 billion cash in circulation.
Economist Clemence Machadu said the continuous charging of usurious premiums as high as 40% to get cash is an unequivocal demonstration that there is need for thorough policy action, strengthening of systems and fostering discipline in line with the new currency architecture.
" Firstly, monetary authorities need to define whether the levels of physical cash is adequate, especially after the de-dollarisation exercise which also saw billions of RTGS$ balances being withdrawn, thereby increasing the demand for cash. There are also rent-seeking practices by some economic agents who sell their goods and services in cash and then sell the cash at a premium, instead of banking it to allow others to access it. This then creates difficulties for the financially excluded, especially rural folks who rely on cash for most of their transactions, and also reduces their disposable income as a chunk of it goes to premiums. In this corruption-ridden environment, some economic agents who are involved in clandestine deals also hold onto huge quantities of cash, which they then use to avoid leaving a paper trail, and this also impacts the circulation flow," he said.
Economist Prosper Chitambara weighed in, saying selling cash was abetting in growing the cost of doing business in Zimbabwe.
"Another thing is because our economy is highly informalised, most of the cash is not circulating in the formal channels. The idea of paying a premium to get cash is not sustainable in the economy. These arbitrage and rent-seeking behaviours increase the cost of doing business in the country," he said.
Source - newsday
