Hoarding cash undermines Zimbabwe economy

Stashing cash in safe deposit boxes, a practice often used to secure valuables, is adversely affecting the smooth functioning of the economy by diverting funds away from productive sectors, according to the Reserve Bank of Zimbabwe (RBZ).

While the practice remains legal, RBZ Governor Dr. John Mushayavanhu has raised concerns about the increasing tendency to hoard cash in deposit boxes, a trend that could slow down economic growth and undermine efforts to stimulate savings and investments.

"Channelling money through the normal banking system has greater micro and macroeconomic benefits," Dr. Mushayavanhu said in a recent interview. "On the micro level, individuals and businesses can earn lucrative returns from savings and time deposits."

To address this concern, the Reserve Bank has recently increased interest rates on savings and time deposits, aiming to encourage people to keep their money in formal banking systems rather than in safe deposit boxes. The current regulations, however, do not place any limits on the amount of cash individuals can store in deposit boxes. According to the Banking Act (Chapter 24:20), banks are allowed to provide safekeeping services based on their risk frameworks, but businesses and traders are still required to deposit excess cash daily under the Bank Use Promotion Act (Chapter 24:24).

The debate surrounding safe deposit boxes also touches on broader concerns regarding economic inclusion, trust in financial institutions, and the role of banks in economic development. Dr. Mushayavanhu emphasized the importance of formal banking systems for improving savings and investment in the broader economy.

"On a macro level, depositing money into bank accounts instead of safe deposit boxes will lead to improved savings and investment in the economy," he explained. "Banks will be able to lend funds to individuals and businesses for projects with positive returns, thus supporting economic growth and development."

The Governor added that using formal bank accounts also helps curb tax evasion and money laundering, as banks implement know-your-customer (KYC) procedures to identify and report suspicious activities.

Despite the clear advantages of formal banking, there is a growing preference for safe deposit boxes, which is largely attributed to lingering concerns about the reliability of the banking system in Zimbabwe. Dr. Mushayavanhu noted that this trend reflects a legacy issue rooted in past macroeconomic distortions and volatility.

"The proliferation of safe deposit boxes is partly due to the fear of losing value from past economic challenges," he said. "However, we have addressed these concerns through the re-calibrated monetary policy framework of April 2024 and subsequent measures."

The Reserve Bank is optimistic that confidence in the banking system is gradually returning. Deposits into formal banking have risen significantly, with USD deposits growing from US$2.3 billion in April 2024 to US$2.8 billion by March 2025. Additionally, the velocity of circulation of the local currency has fallen, suggesting that people are increasingly comfortable keeping their money in banks without fearing depreciation.

In the face of this, the RBZ remains focused on maintaining price stability, exchange rate stability, and fostering a positive real interest rate environment to encourage a healthy savings culture.

Moreover, ongoing efforts to promote digital payments and a cash-lite economy, including increased use of point-of-sale (POS) machines, are expected to enhance the formalization of the informal sector.

Economists have weighed in on the issue, highlighting that trust in the financial system remains a significant barrier to fully integrating the informal economy into the formal sector.

Mr. Tendai Munyoro, an economist and financial systems researcher, pointed out that although banking deposits benefit the economy by improving liquidity, lending, and investment, the public's caution stems from real losses experienced during past episodes of currency instability.

"Trust is not built overnight, especially for those who have experienced the volatility of past economic crises," Mr. Munyoro said. "The Reserve Bank's commitment to a stable monetary regime is encouraging, but people want assurance that there won't be another overnight currency switch or a sudden withdrawal freeze."

Dr. Mercy Gutu, another economist, suggested that individuals and small businesses using safe deposit boxes are essentially employing a hybrid approach. While they continue to use banks, they rely on private fallbacks to manage liquidity and mitigate risks posed by the unpredictability of the formal system.

"It's a practical hedge against the volatility of the formal banking system," Dr. Gutu noted. "Financial fluidity and the ability to store and access money on one's own terms is critical in an economy where many operate informally."

As Zimbabwe strives to create a more stable and reliable financial environment, the RBZ's efforts to increase savings, investment, and confidence in the banking sector will be crucial. The challenge remains to restore the public's trust in the formal financial system, ensuring that the benefits of banking extend beyond individual account holders to the economy as a whole.