$1m note on the way as cash crisis worsens

Paul Nyakazeya



CASH shortages worsened this week amid speculation that the Reserve Bank of Zimbabwe was working on plans to introduce higher denominations of bearers&#82

17; cheques.


Businessdigest understands that the central bank is finalising the introduction of $500 000 and $1 million notes. The new bearer’s cheque notes are likely to be introduced early next month.


The denominations below $10 000 will be scrapped, sources said.


“From the discussions and preparation we have had so far I would say the new bearer’s notes will come mid-December,” said a central bank official who is part of the team working on the introduction of the new denominations.


RBZ governor Gideon Gono is expected to present his monetary policy early next month. In that policy, sources say, Gono will give an indication of when a new currency will come but will introduce higher denominations of bearers’ cheques as an interim measure before the launch of Sunrise Two.


Two weeks ago Gono said plans for a new currency had been shelved but the market remains sceptical about the real motive of that announcement.


The central bank introduced a $200 000 bearer’s cheque note three months ago but its value in both real terms and convenience has been overtaken by events on the inflation front.


Inflation surged to 14 840,5% for October, increasing 6 848,5 percentage points on the September figure 7 892,5%.


As inflation continues to gallop the demand for cash has also increased.


For instance a litre of petrol that cost $180 000 three months ago is now going for $1,3 million.


The parallel market has also put pressure on the frail Zimbabwe dollar. The United States dollar which was going for $50 000 four months ago is now pegged at about $1,3 million.


This demand for cash comes as the central bank continues to limit cash withdrawals for individuals and corporates. Corporates are allowed to withdraw only $40 million while individuals can only get $20 million a day which is barely enough to buy 20 litres of fuel on the parallel market.


Central bank sources said the plan was for the new denominations to coincide with the festive season which is normally characterised by high cash demands.


Most banks had run out of cash by mid-afternoon yesterday.


Genesis Bank group economist, Brains Muchemwa, said it was surprising that despite the market having excess liquidity cash was not available in banks.


“One would not expect banks to have problems in funding their cash requirements with such excess liquidity,” Muchemwa said. “The most probable explanation could be that the Reserve Bank might be preparing to launch Sunrise Two as it promised in October, hence reduced need to print too many of the old bearer cheques that would need to be phased out in a month or so.”


Zimbabwe Allied Banking Group economist David Mupamhadzi said it was an indication of the value that the Zimbabwean dollar has lost over the past few months.


“Due to the current cash shortages that we are experiencing coupled with the continuous increase in prices, the demand for money will continue to increase, and a number of agents will prefer to keep their money out of the formal system,” he said.


Mupamhadzi said the situation had been worsened by the current shortages of basic goods and services, which forced people to carry cash. Most business are now demanding cash payments. In any case the black market does not deal with bank transfers, cheques or plastic money.


ZB Financial Holdings group economist, Best Doroh, said the root problem was inflation which meant that the demand for cash for transaction purposes was now high.


Kingdom Financial Holdings economist, Patrick Saziwa, said the current cash shortages were caused by speculation as a lot of money was outside the banking system.


“The Reserve Bank was not printing enough cash to support the money that it is dishing out
in the form of the Basic Commodities Supply Side Intervention Facility and other cheap financing systems leading to a cash imbalance,” Saziwa.

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