Eric Bloch Column

Realities of the shortage of bank notes


so-fareast-language: JA”>ZIMBABWEANS, who revel and thrive on rumours, no matter how far-fetched they may be, have ascribed the current shortage of bank notes to a myriad causes. The rumours have ranged from the absurd to the ludicrous, including the inconceivable suggestions that the bank note crisis is a direct consequence of political machinations. The promoters of those rumours include some who suggest that it has been a deliberate plot of Zimbabwe’s leading political opposition party to sabotage the economy to discredit the ruling party. The diabolical plan to achieve this was, according to the rumourmongers, secretly to persuade big business not to bank cash receipts so as to cause the shortage of notes.


Other purveyors of equally moronic rumours suggest that the bank note shortage has been created by government to intensify the hardships of the nation’s workers, as retribution for support of trade union organised stayaways and for their underpinning the opposition party. Yet another allegation which permeated the populace resulted from prominent advertisements in the national press which attacked the Reserve Bank of Zimbabwe and accused it of creating the shortages and that such shortages were a violation of the Reserve Bank Act. It suggested that as a result the bank and its senior management or directors could be liable to litigation. The advertisement further implied that cash was being taken over Zimbabwe’s borders, facilitated by last year’s amendment of Exchange Control regulations which made it lawful for individuals to remove $50 000 when travelling from Zimbabwe, as compared to the previously permitted amount of $15 000.


The reality is that the bank note shortage is wholly attributable to government’s gross mismanagement of the Zimbabwean economy. The first of the consequences of that economic mismanagement is the pronounced inflation which has afflicted Zimbabwe. With prices almost trebling in a year, it was inevitable that people would have to carry more money for their shopping and other expenditure than they had to previously. Salaries and wages increased, and for most were rapidly converted into notes to fund their surging spending. Such increased spending could only be sustained if a greater volume of bank notes was in circulation. The magnitude of notes being held by consumers also increased, instead of being part of a continuous circulation of the currency, because with a pronounced scarcity of basic commodities consumers always wished to have sufficiently large funds in hand to avail themselves of any unexpected opportunity of purchasing such products. Thus, the amount of bank notes in the wallets and purses of the populace steadily increased — not because they were any wealthier, but because circumstances motivated them to hold their limited resources in cash instead of in bank, building society and Post Office Savings Bank accounts.


The availability of bank notes further worsened because the black market in foreign currencies grew and grew, both as to the numbers of traders and as to the amounts paid for much needed foreign exchange. Each trader required to hold vast amounts of Zimbabwean dollars in the form of bank notes to trade in the market, and the aggregate of the Zimbabwean funds held collectively by the traders at any one time will be at least hundreds of millions of dollars, if not billions.


To suggest that the export of bank notes is a material factor to the scarcity is spurious. Most who export the currency are travellers who require the Zimbabwean funds to meet obligations for Zimbabwean Customs duties and import taxes upon return, and to pay for travelling expenses in Zimbabwe upon returning to the country. It was in recognition of this that the Minister of Finance motivated the Reserve Bank to be realistically responsive to inflation by an appropriate increase in the permitted exportable levels of the domestic currency. But as the Zimbabwean dollar has no lawful convertibility outside Zimbabwe, few find any purpose in leaving exported funds in other countries. The bank notes leave Zimbabwe, but they also return. Even such notes as are unlawfully exported, (and similarly are unlawfully exchanged for foreign currencies with persons external of Zimbabwe who intend thereafter to use the notes for purchase of goods, effectively at much discounted costs), are returned into Zimbabwe and come into circulation by the purchasers of the notes smuggling them into Zimbabwe to pay for their purchases of goods.


It is correct that the Reserve Bank should have reacted to inflation and contributory factors by increasing the bank notes in circulation through further printing of notes, albeit controlled in order not to over-fuel inflation. It has long been known that the Reserve Bank wished to do so, recognising the need for a higher volume of bank notes in circulation. But the Reserve Bank’s hands were tied. Thanks to government’s disastrous economic policies, and its confrontational political stances and disregard for law and order, the inflows of foreign exchange to Zimbabwe have continuously declined to levels well below those required for essential imports, which imports include the security paper and inks required for the production of bank notes. Government devastated agriculture, reducing agriculturally-based foreign exchange receipts by two-thirds or more. It reduced the viability of much of the mining sector to an extent that forced the closure of many mines and lowered volumes of production of others so that far less foreign exchange was attained by that sector.


Government’s policies were the primary cause of inflation, and in particular its fiscal policies ignored all principles of frugality, and espoused prodigal spending far beyond government’s means, and therefore were major contributors to inflation. So too was government’s failure to do anything substantive to contain corruption in both public and private sectors, despite recurrent lip-service to do so, that corruption being another significant contributor to inflation. And that inflation rendered most Zimbabwean exports unprofitable and not, therefore, a source of foreign exchange, for government’s monetary policies have been so appallingly counterproductive as has been its fiscal policies. Exchange rate adjustments in response to inflation, whether termed as “devaluation”, “export support rate”, “currency exchange rate adjustment” or otherwise where applied, have been few and far between, always belated and always inadequate, to the severe prejudice of foreign exchange generation.


And concurrently, government continued to alienate the international community, resulting in ever less foreign direct investment, balance of payments support, and international aid. Soon the national cupboard was virtually bare of foreign exchange, resulting in the shortages which — together with inflation — caused consumers to increase their holdings of notes, and brought into being the very active currency black market also heavily reliant on bank notes. That lack of foreign exchange forced the Reserve Bank to prioritise outflows of the limited remaining resource of currencies for imports, and that prioritisation was also subject to massive political and consumer pressures. Imports of fuel, energy and food understandably ranked higher in the priority list than did bank note security paper and printing inks. Thus, as much as the Reserve Bank was aware of the need for new bank notes to be produced, it could not address that need timeously, and to cast blame at the Reserve Bank is unjust and uncalled for. Just as credit should be given where credit is due, so blame should not be cast where it does not belong, but should be laid fairly and squarely where the cause actually lies, and that is the near-criminal destruction of the economy by government.


The scarcity of bank notes is but another of many shortages, but it is one of far-reaching consequences. Employers are unable to source the currency needed to pay weekly wages. Recipients of cheques for their salaries cannot encash them. The absence of a sufficiency of bank notes in circulation is repercussing adversely upon retail trade, which will in turn impact upon all sectors of commerce and industry. The hardships of the populace intensify. The situation is deplorable, and the distress is so great that despite the many demands upon the minimally available foreign exchange reserves, the Reserve Bank has now necessarily allocated funds for the importation of the inputs for the production of the bank notes.