Comment

Cash crisis: Murerwa’s kindergarten joke


RESER

VE Bank of Zimbabwe governor Leonard Tsumba must have seen what was coming when he quit his cushy job in a huff to take early retirement.


Tsumba was fed up with lopsided policies foisted on his administration which did not make economic sense.


At least he was man enough to throw in the towel when the kitchen got too hot.


During Tsumba’s tenure the country’s inflation — the major cause of the current cash crisis — has increased from 15,5% in 1990 to 22% in 1995, necessitating the introduction of high bank note denominations — the $50 note in March 1994 and the $100 note in January 1995.


Very high inflation over the past decade has continued to significantly erode the value of money in circulation in Zimbabwe. This has dramatically increased the cost of supplying notes and coins. Not only was a 1990 dollar worth only six cents in 2001, but annual budgetary provisions for the supply of notes and coins increased over this period from $176,2 million in 1996 to $846,6 million in 2000.


The surge in inflation to 64,4% by June 2001 further increased the public’s demand for higher currency denominations and, therefore, more use of the $100 note. The RBZ was forced to introduce the $500.


After this major decision Tsumba and his team of technocrats fell into a deep slumber and conveniently forgot their job descriptions.


They forgot about the inflation monster, strict budgetary controls and, most worrying, they allowed government to plunder the fiscus at will to feed its insatiable appetite for funds.


This year inflation has steadily skyrocketed from 200% to 300,1% and to the current 364,5% in June. Analysts predict it will hit 500% before the new year and nobody is doing a thing to contain it.


The joke of the year came on Tuesday when Finance and Economic Development minister Herbert Murerwa told Zimbabweans that in the next 60 days he would be abolishing the $500 note and introducing a new one to coincide with a new $1 000 note!


He said this would curtail the cash crisis that has resulted in individuals queuing at banks and building societies from as early as 5:00 am daily for withdrawals as little as $5 000.


Analysts said Murerwa threw a very bad kindergarten joke because by October inflation would have galloped to at least 400%. This would increase demand for money to buy basic commodities, now only available on the parallel market.


The high frequency of circulation is also attributable to rising domestic prices. Government only pays lip service to price controls. Businesses now charge whatever they want for commodities.


These are uncertain times and because of the rampant inflation individuals would rather have their cash so that whenever they come across something they need they buy it immediately.


Bankers say we need $10 000 notes now. If we need to keep the mint busy, we should now have coins for the $10, $20, $50 and $100 denominations.


Tsumba told this newspaper that in an environment of hyperinflation the tendency was for the economy to transact on a cash basis. He said the transacting public would, therefore, hoard currency at home as opposed to depositing it in the banking system.


He said rates of return on money deposits were too low relative to inflation. There is need for higher deposit rates to encourage the public to hold their money balances in banks as opposed to under mattresses.


Tsumba said the solution to the currency crisis was to bring economic certainty by reducing inflation through stabilisation of inflationary expectations.


As long as inflation is not checked printing more money will not solve the cash crisis. In short, Murerwa’s solution is merely a statement which those who are hoarding money will treat as a joke — which is what it is.

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