HomeOpinionNo solution yet to cash crisis

No solution yet to cash crisis

Paul Nyakazeya/Bernard Mpofu

WHEN Reserve Bank governor Gideon Gono said the long queues at banking halls were a “symptom” of an ailing economy, many people who had endu

red long hours in the queues were left wondering what had gone wrong with the central bank chief mandated to tackle monetary ills in the economy.

In a recent interview with a local daily, Gono said his office had been accustomed to long queues of parastatal officials and other key economic players seeking scarce foreign currency at the RBZ.

Barely a week after Gono promised an improvement in money supply, the long queues remain outside most financial institutions.

This week it appeared a definite resolution to Zimbabwe’s persistent cash crisis was far from over as clients jostled to withdraw their savings which have been stuck in the banks for the past month.

Although government commentators had predicted a reduced demand for cash after the festive holiday, the cash crisis persists.

Gono, in a public announcement on New Year’s Eve, said the central bank had pumped a total of $33 trillion into the banking sector to complement the $67 trillion which was already in circulation.

He promised the situation would improve at the start of the year, accusing what he termed big “money movers” and cash barons for the current crisis.

Gono also accused transport operators, wholesalers and bank employees for fuelling the crisis.

Given the total amount in circulation of about $100 trillion, it needs only two million individual account holders to exhaust it at the maximum daily withdrawal of $50 million per person.

It is estimated that there are about 2,1 million personal account holders in the country, which will translate to about $47 million per account if the $100 trillion in circulation is shared equally.

This excludes corporate and other institutional cash requirements. Gono said there were 2,1 million active corporate and institutional accounts in Zimbabwe. Alone, they will require not less than $210 trillion through a maximum daily withdrawal of $100 million.

Analysts said the cash shortage was also due to the pricing and inflation levels compared to the total amount of money in circulation.

“There is need for higher denominations of $5 million and $10 million because the real value of the recently injected notes is similar to the existing ones,” economic consultant, John Robertson, said yesterday.

Robertson said Sunrise 2 could be described as “displaying an incredible level of confusion”.

In South Africa, the highest denomination is R200 which can buy two crates of beer while the new highest denomination in Zimbabwe is $750 000, which is only enough to buy one bottle of mineral drink.

In South Africa, a bank account holder is allowed to withdraw a daily maximum of R3 000, enough to buy six-months of groceries for an average family of five. The maximum daily withdrawal in Zimbabwe is enough to buy about 4kg of meat.

Before Gono became governor in November 2003 each bank would decide, at an operational level, how much it could allow its customers to withdraw.

Bigger amounts required a day or more advance booking. Given that each bank has products with different benefits like current or savings and different classes of the two categories, Gono cannot expect building societies and the POSB to offer the same kind of products and services as commercial banks.

“There should be product differentiation and segmentation in the banking sector regardless of money supply instead of standardising banking services and products and destroying competitiveness,” one economist said.

Cash-hungry Zimbabweans are asking why the country continues to face acute cash shortages when the hurriedly deposited $200 000 notes that were previously rendered obsolete in “tactical demonitisation” by the central bank continued trading as legal tender.

“The underlying problem is inflation. As long as prices continue to go up it will be difficult to ascertain the sufficiency of money in circulation,” ZB Financial Services group economist Best Doroh said yesterday.

Doroh said logistical issues were causing cash shortages.

“It may be a surge in demand given that it was the festive season. It might take long for these queues to disappear,” Doroh said.

Gono last week assured the nation that the situation would “improve” at the start of the New Year but people seen queuing at banks insisted that the new family of $250 000, $500 000 and the $750 000 bearer cheques would only yield cosmetic relief to the cash shortages.

“The situation is set to be worse as there will be increased demand for cash as schools open next week,” said one banker.

Economic analysts are saying while the recently announced monetary reforms would not be a panacea to the country’s economic woes, printing higher denominations was ideal under prevailing conditions.

Bankers who spoke to the Zimbabwe Independent said they were forced through an uncontested central bank decree to work overtime including Saturday and Sunday at their own expense as if they had contributed to the cash shortage.

“No cash was allowed to be withdrawn from corporate accounts. Reserve Bank surveillance teams were deployed in banks to monitor the behaviour of banks in compliance with Gono’s orders, virtually taking over branch operational arrangements,” said a banker with a building society

Analysts said the central bank bureaucracy required to perform these quasi-fiscal responsibilities will be the size of a government.

Lines of authority of banks and operational discretion were suspended without notice. For obvious reasons, most families in the rural areas depend on the groceries and cash disbursements from those working in the urban areas. It is misleading to see those in rural areas as detached from urban dwellers.

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