Cash crisis: Mangudya battles to wriggle out

Concerns the Reserve Bank of Zimbabwe (RBZ) governor John Mangudya could be attempting to reintroduce a local currency through bond notes backed by a US$200 million Afreximbank nostro-support facility overshadowed the central bank’s otherwise genuine attempts to deal with a cash crisis gripping the economy. Mangudya introduced a raft of measures, which among other things, included withdrawal limits and the mandatory use of risky currencies such as the South African rand.

CHRIS MURONZI

RBZ governor John Mangudya
                                                       RBZ governor John Mangudya

Fears mounted yesterday Mangudya was attempting to sneak in the Zimbabwe dollar through the back door. Analysts say although he has good intentions, it could result in unintended consequences such as a run on deposits and low confidence in the financial system.

Concerns also rose over the convertibility of the bond coins amid worries it could lead to a thriving black market.
With the introduction of the bond notes, a black market of foreign currency is seen emerging as traders attempt to gain a measure of arbitrage opportunities — buying and selling money from one market to another to capitalise on temporary discrepancies or inefficiencies — on currencies.

The announcement on Wednesday also triggered panic withdrawals as depositors resist the central bank’s controls amid anxieties that undue controls were being imposed on the formal banking sector.

The proposed launch of bond notes is a build-up on coins, which were introduced to solve small change problems.
Mangudya denies he is manoeuvring to introduce a local currency, saying fundamentals were not conducive for the return of the Zim dollar.

The governor lowered cash withdrawal limits to US$1 000 and reduced the amount that could be exported out of the country to US$1 000.

He also ordered all retailers and wholesalers to use point of sale (POS) machines to limit demand for cash and to display all international exchange rates in all banking halls.

“The Reserve Bank has noted with concern that some wholesalers and retailers are operating without POS machines in their outlets. This scenario exacerbates demand for cash as consumers will be compelled to look for the required amount of cash to transact with them,” he said.

“Accordingly, all retailers, wholesalers, businesses, local authorities, utilities, schools, universities, colleges, service stations, informal sector, among others, are with immediate effect required to install and make use of the requisite POS machines, so as to reduce the demand in the economy.”

“Banking sector players, through appropriate structures such as the Electronic Payment Association of Zimbabwe, should endure that the current POS arrangements and strategies are revised for the benefit of all stakeholders.”
Mangudya urged banks to deploy POS infrastructure in an optimal manner.

He said the measures would ease the cash shortages in the economy, while reducing import dependence through promoting local production and exports.

“These measures also restore the multi-currency system and fosters confidence in the banking sector, through the use of a variety of currencies and promotion of savings culture,” he said.

Bankers told businessdigest on Thursday the new measures could see a depositor’s migration from formal banking to informal in a bid to avoid controls.

“This can be problematic. Whenever controls exist, people react by avoiding the controls. This could cause withdrawals and a move into the informal sector,” a banker said.

Mangudya also moved to ease a cash crisis through increased usage of other currencies, the use of electronic money to reduce demand for the United States dollar, capping withdrawal limits and curbs on individual cash exports. However, analysts warned the measures amounted to controls and will aid the revival of a fully-fledged foreign exchange black market.

Mangudya also announced 40% of all new US dollar foreign exchange receipts from export of goods and services, including tobacco and gold sale proceeds, would be converted at an official exchange rate to rands and 10% to euros to spread the demand for currencies.

He bemoaned the demise of the a traditional savings culture in the country.

“In this regard, the central bank has, with immediate effect, requested all banking institutions to open special savings products with the following features: a minimum balance of US$10 000 or ₣10 000 or ZAR20 000, minimum term structure of six months, annual compound interest rate of 5% on US dollar and euro balances and 10% on rand deposits and tax free. Mangudya says he is working on modalities for the introduction of non-negotiable certificates of deposits in a bid to encourage lending and stimulate economic growth.

He said the central bank had witnessed reduced lending activities despite rising real-time gross settlement system (RTGS) balances.

“The central bank has noted reduced lending activities leading to increased RTGS balances. As far as we are concerned, RTGSs take one day,” he said.

Priority levels for forex allocation

  • Priority One
  • Net exporters who import raw materials and machinery;
  • Non-exporting importers of raw materials and machinery for value-addition and import substitution;
  • Strategic imports such as basic foodstuffs, fuel, medicines;
  • Repayment of off-shore lines secured to fund production;
  • Payments for services not available in Zimbabwe; and
  • Dividend payments.

Priority Two

  • Bank borrowing clients in the productive sector engaged in critical and strategic imports.

Priority Three

  • University and college fees for students already enrolled in courses abroad;
  • Cash-depositing clients in the retail and wholesale industry; and
  • Other borrowing clients engaged in the importation of non-strategic goods.

Things not a priority

  • Capital remittances from disposal of local property;
  • Capital remittances from cross-border investments;
  • Funding of offshore credit cards;
  • Importation of trinkets and/or goods or services readily available in Zimbabwe, including vehicles, maheu, bottled water, vegetables; and
  • Donations.