Eric Bloch: Money-mania Reigns Supreme

ONE of the many actions of the Reserve Bank of Zimbabwe (RBZ) which provoked pronounced resentment amongst the Zimbabwean populace was the imposition of limits upon amounts of cash withdrawals.

As hyperinflation progressively, and very rapidly, eroded the purchasing power of money, the RBZ constraints upon cash withdrawals from banks resulted in the intensifying fury of the hundreds of thousands who queued for endless hours daily to withdraw their permitted pittances from banks and building societies, demand increased exponentially, and with surging resonance, that RBZ discontinue the restraints upon cash withdrawals.

RBZ at no time concealed that the regulation of quantum of cash withdrawals was being pursued most unwillingly and reluctantly, but was necessitated by force of circumstances. Diverse reasons were given for the regretted containment of cash withdrawal levels.

First and foremost was that  the imposition by the European Union of general economic sanctions upon Zimbabwe, as distinct from the previously  prevailing (very merited) sanctions targeted against only certain individuals within, or associated with, the ruling political hierarchy, had had some grievous repercussions, to the prejudice of the population in general.

These included that  not only  was RBZ no longer able to procure the security paper necessary for the production  of Zimbabwean currency bank notes, but that a considerable consignment of such paper, fully paid, for  had been impounded in Germany.

In consequence, RBZ simply did not have the resource required to produce a sufficiency of currency to serve national needs, and especially so as the extent of those needs was soaring upwards daily as a consequence of extreme inflation.

Thus RBZ had no alternative but to apply what was tantamount to a rationing system to the issue of currency, irrespective of consequential hardships, but the efficacy of the system was gravely impaired by numerous RBZ and commercial bank personnel circumventing the constraints in order to advance personal gain, to the disadvantage of the greater majority of the populace.

Concurrently, there is little doubt that the Reserve Bank’s actions were also motivated by a desire to curb the endless, monolithic rise in inflation. This has not been stated by RBZ, but logically it must have been part of the rationale for wishing to limit the amount of currency in circulation.

On the one hand, the lesser the availability of currency, the lesser will be consumer demand, and when demand levels decline in relation to supply levels, sellers are driven to stimulate greater sales volumes by containing price escalations.

On the other hand, for like reasons, minimisation of currency availability restricts demands for foreign currencies within the black markets, with resultant exchange rate stabilisation to a greater extent than when demand is on the increase. 

As rising foreign currency costs automatically impact upon the costs of imported goods (which are a direct or indirect element of almost every business) such exchange rate movements are highly inflationary.

Therefore, whilst only very minimally effective, it must be assumed that the restrictions upon cash withdrawals imposed by RBZ were in  part pursued in an attempt to contain, at least to a  minimal extent, the endlessly upward rise in prices, as evidenced by the horrific, never before experienced, inflation of more that two billion per cent per month.

But no matter how valid may have been the reasons for RBZ’s containment of cash withdrawals, the oppressed population was deeply resentful, and wholly disregarded such reasons.

The harsh fact was that the average Zimbabwean could not access a sufficiency of cash to fund the absolute bare essentials of daily living for himself, his family, and dependents.

Permitted withdrawal levels did not suffice to meet basic requirements for accommodation, utilities, transport, food, education, health care, and the like.

And the insufficiency of cash was grievously worsened by the unjustified and uncaring demand by almost all parastatals, local authorities, and businesses, not to accept cheques, but to receive cash payments.

Such demands were justified on the two-fold basis that such entities also have cash needs, and that value payments by cheques is very considerably eroded by the impacts of inflation during the inordinately long periods of effecting cheque clearances.

But parastatals and local authorities are supposedly “owned” by the people, and exist to serve the people, and yet they are very substantially worsening the circumstances of the people, and instead of fulfilling their service and caring obligations, are compounding the hardships of the community.

When,  over the  last two  weeks, RBZ was able to effect a meaningful increase in cash withdrawal limits (although not to the extent demanded by the populace, being the removal of all restrictions), money mania immediately set in.

Overnight rates of exchange in the unlawful “alternative” foreign exchange markets burgeoned upwards, rising by more than 1000 % in less than 24 hours.

The foreign  currency dealers,  in total disregard for the devastating economic  repercussions, and with equally  great disregard  for the fact that inevitably they would eventually  be victims of those repercussions  to as great an extent as would be most Zimbabweans, allowed  avarice  and greed to override all else.

That contemptuous  lack of concern  for the negative  impacts upon an already  almost wholly emaciated economy,  and upon an appallingly impoverished  populace, and with equally great lack  of concern that those adverse  impacts would, in time affect all Zimbabweans, including themselves, was driven by the grasping, money-grubbing, rapacious desire to achieve immediate enrichment (driven by conviction that other opportunities would arise to ensure maintenance and growth of wealth, notwithstanding the further economic  collapse being triggered by them).

Concurrently, vast numbers of shopkeepers realised that the somewhat increase availability of cash would not only increase costs, as a result of the exchange rate movements, but would also increase consumer demand.

Therefore, when the increase in cash withdrawal levels became effective last Thursday, innumerable shops closed their doors, pretending that they were doing so for purposes of stocktaking, but actually in order to radically adjust their selling prices.

They had total disregard for the cost of goods as had been sustained by them, and for a fair and reasonable  profit margin  thereon, and instead were driven by their wild  “guesstimates”  of replacement  costs, and  by anxiety  to exploit opportunities of maximized profits.

Money mania reigned supreme, with no concern as to possible consequences. No thought was had to the inevitable boomerang effects of yet cataclysmically greater inflation being triggered by them, which would repercuss upon the gravely distraught economy to a gargantuan extent, to the intense prejudice of all.

The RBZ needs, as expeditiously as possible, to discontinue all cash withdrawal constraints, but concurrently all facets of the economic society, including the milliard of unofficial  currency traders, and all in commerce, as well as the banking sector, need to pursue a responsible, sociologically–conscious drive to contain inflation, instead of fuelling it. National economic responsibility must override avarice, greed, and money mania, not only driven by communal obligation, but also self-interest.

l Many  have urged me to respond to Chido Makunike’s attack in last week’s issue of the Zimbabwe Independent,  upon me and my prior week’s  article  on land reform.

Makunike is entitled to his opinion (even if a wrong one), but is neither entitled to misrepresent, distort or misconstrue that which I have written, nor to libelously accuse me of dishonesty and racism.

If Makunike would remove the chip from his shoulder, he would have a more balanced perception. Accordingly, I dismiss his attack upon me with the contempt it deserves, and will not belittle myself to replying to his spurious contentions.

BY ERIC BLOCH