Why Zimbaweans do not bank cash

By Nhlanhla Nyathi



CASH is the simplest method of payment and means of settlement for virtually any type of transaction.


There is no laten

t risk associated with a cash transaction unlike other forms of payment such as cheques, electronic transfers and many other information technology-backed systems that can go wrong.


Most forms of payment disadvantage either party in a transaction as goods are sometimes released after the seller confirms credit of funds in their bank account or sometimes goods are released without confirmation of payment having gone through the account. Such an arrangement requires a certain level of trust as one party in the transaction has the upper hand over the other.


It is clear why cash is a favoured method of settlement especially in developing countries facing financial challenges in rolling-out costly IT infrastructure to support cashless transactions.


In Zimbabwe like any other country, cash is used on a daily basis albeit in higher proportions because of the effects of the hyper-inflationary environment that has eroded the purchasing power of the Zimbabwe dollar because of the economic recession.


This could justify the running of the printing press now and again by the Reserve Bank of Zimbabwe (RBZ) to compensate for eroded buying power of money in circulation. Although the hyper-inflationary environment as indicated by the October inflation rate of 14 840%, can in part explain the high demand for cash, the informalisation of the Zimbabwean economy ushered in by the economic recession pursuant to the shutdown and scaling down of operations by many multi-national companies (MNCs) has had a hand in the shift in modus operandi of the whole economy resulting in the high usage of cash.


MNCs and large local corporate entities dominated the commercial trading environment. MNCs were well organised and set a strict corporate culture based on transacting with bona-fide banking institutions that partnered them in their long-term growth strategies. Consequently all financial transactions were handled by their personal bankers to facilitate servicing of loans and to maintain a banking track-record for future loan appraisals.


In addition, banking institutions had access to foreign currency and well developed International lines of credit, encouraging MNCs to bank all their sales revenues to access the foreign currency.


The era of the economic recession heralded the shut-down and scaling down of operations by most MNCs ushering in the era of the informalisation of the Zimbabwean economy.


The informal sector was characterised by small business operations, the main objective of which was to fill the gap left by the closure of MNCs. For Zimbabwe, the informal sector was the only viable option as MNCs and foreign direct investment was not forthcoming due to negative international perception.


Unfortunately the informalisation era brought with it new complications associated with the fact that most of the new entrepreneurs did not have adequate capital to effectively replace MNCs. The corporate culture of yester-year broke down with the informalisation of the economy as most of the entrepreneurs tried to make ends meet with little working capital and with virtually no access to the privileged personalised banking MNCs used to have.


Most people in the informal sector do not have business accounts with commercial banks or deliberately operate out of the banking system to evade the Zimbabwe Revenue Authority tax net.


Those who had business accounts maintained them for the sole purpose of clearing the odd cheque received once in a while. Consequently, the corporate culture of yester-year has transformed to that of fragmented entities more inclined to use cash in their daily dealings because of the lack of access to the total banking package.


There is no need to deposit sales revenues because the informal sector has no loans to service and no hope of accessing other investment banking services offered by financial institutions.


The privilege previously enjoyed by MNCs through personalised banking has become a pipe-dream for the informal sector, resulting in many financial transactions being undertaken outside the banking system.


The prohibitively low withdrawal limits imposed by the RBZ further exacerbated the need to keep cash outside the banking system. Many people knew that if they deposited cash, difficulties would be experienced in withdrawing it because of the unworkable daily limits placed on withdrawals and yet the cash was needed on a daily basis to purchase foreign currency that had found its way to the parallel market.


Press reports indicating that $65 trillion is missing from the banking system came as no surprise. The informalised Zimbabwe does not need to deposit cash because it simply circulates outside the banking system to buy foreign currency used in the importation of trading stock and thereafter, the stock in trade is sold for cash to the public.


It is a vicious cycle that operates efficiently outside the banking system. If foreign currency was available in the banking system, there could be a motive to deposit all savings as part of the effort of accessing foreign currency.

As it stands, foreign currency is in the illegal parallel market, outside the banking system and the Zimdollar, which is the primary agent used to buy hard currency, once withdrawn from the banking system will keep circulating outside the banking system chasing dwindling foreign currency inflows.

The amount of local dollars needed to purchase hard currency will keep increasing in line with the depreciation of the Zimbabwe dollar on the parallel market, further putting pressure on the RBZ governor to print more cash.


Plans by the RBZ governor, Gono, to initiate the second phase of slashing zeros and subsequently introducing new bearer cheques through operation Sunrise 2 will not stop the vicious cycle.


Cash barons will slowly build up their cash piles outside the banking system through their various business empires and get back to business as usual. This has become a business culture in the informalised Zimbabwe.


The wait-and-see attitude adopted by the RBZ governor to the current cash crisis only serves to strengthen people’s resolve to remove money from the banking system and keep it in their homes. Zimbabwe has fundamentally changed since the onset of the economic recession and will only normalise once foreign currency becomes available through the formal banking system.


Even the introduction of higher denominations will not help the situations. It seems that barons are here to stay unless and until Zimbabwe sorts out its economic mess.


Nyathi is a director of LCE Capital, a private firm trading in the United Kingdom and Zimbabwe. He can be contacted on 0912 250 092.

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