Monetary policy measures announced recently by Reserve Bank of Zimbabwe (RBZ) governor John Mangudya that the central bank will introduce export incentives and bond notes to ease cash shortages have had a dramatic, but negative impact on the liquidity and cash crisis in the economy.
Although the RBZ may have been well-meaning, the unintended consequences have been nothing short of the calamitous.
Banks have been unable to pay their clients on demand and are offering far less than the set daily withdrawal limit of US$1 000 by the central bank.
In fact, they first reduced the withdrawal limits to US$500 before whittling them down to US$300 or US$200. The ensuing chaos in banks has seen personal account holders being forced out of banking halls to withdraw their cash from automated teller machines positioned outside the bank. However, the machines are sometimes disabled after working hours.
The reason why the cash shortage has worsened is due to the clear run on banks which has been triggered by the planned introduction of the bond notes. Despite Mangudya’s explanations to the contrary, many Zimbabweans believe government is trying to bring back the Zimbabwe dollar through the backdoor — a move which could trigger shortages of basic commodities, among a host of challenges similar to those experienced in 2008.
The RBZ, however, has been at pains to allay these fears.
“Bond notes would be issued at par with the US dollar in the same manner that bond coins have been operating,” the RBZ wrote in an advertorial pamphlet that has been carried in mainstream newspapers. “It, therefore, means that bond notes will exchange at the same value as the US dollar.”
Factors such as the country’s unsustainable trade or current account deficit, poor balance-of-payment position as well as massive revenue leakages and an uneven distribution of liquidity in the market are the major causes of the liquidity crunch that has spawned the serious cash shortages buffeting the economy.
The situation has in recent weeks been exacerbated by the depleted nostro accounts balances which have been drained by the ballooning import bill.
Banking institutions have in recent months witnessed increased pressure on their nostro accounts because Zimbabwe is now a net importer due to a wave of company closures and a dramatic fall in production.
A nostro account is a bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts are used to facilitate settlement of foreign exchange and trade transactions.
The cash shortages have had devastating consequences for the transacting public as evidenced by the long winding queues at most banks.
The desperate state of affairs triggered by the acute cash shortages was dramatised by the situation in which depositors received US$50 in bond coins at the Chitungwiza branch of FBC bank earlier this month.
One depositor, Leah Dziva, waited in vain on several occasions for more than four hours at a time in bank queues only to be told that cash has run out. Dziva’s experience shows how the situation has deteriorated since the RBZ’s announcement.
Dziva’s heartrending experience is one that many Zimbabweans have to endure on a daily basis. Elderly pensioners have not been spared as they are also forced to queue for hours in banking halls for a paltry monthly US$60 they get from the National Social Security Authority.
The cash shortages have seen many Zimbabweans turning to retail outlets for money through the cash-back facility.
However, accessing money from retailers in the advent of the cash crisis has turned into a nightmare. Retailers now insist that desperate customers buy goods from their shops for a certain amount to access cash.
The uncertainty has resulted in some companies looking to sell their stocks at a discount so that they clear everything before the introduction of bond notes, clearly showing how Mandudya’s announcement has unsettled business.
Many business people have adopted a wait-and-see approach, while holding onto their money in hard currency, worsening the cash shortages in the country.
Economist and Buy Zimbabwe chairman Oswell Binha said the run on the banks shows that the RBZ still has a long way to go in building confidence in the market.
“The central bank is still suffering from legacy problems and it was supposed to be working on confidence building measures,” Binha said.
“The public is still smarting from the problems they faced such as the decimation of their savings and the printing of money for 24 hours a day. It is inevitable that any form of insinuation that they were going to introduce the local currency would cause a run on banks.”
Binha said the deep-rooted lack of confidence in the financial sector as a result of the introduction of the bond notes will be “very expensive to gain back” and warned that this would trigger a crisis worse than that of 2008.
Economist John Robertson said the announcement of the introduction of bond notes has been worsened by speculation by the public which “has made a bad idea worse” and will result in more people “hiding their money under the mattresses”.
Zimbabwe National Chamber of Commerce CE Chris Mugaga said the cash crisis would seriously affect companies which import products.
“The country is a cash economy and so when they cannot withdraw cash from the banks, it is a challenge notably for those companies which are involved in the importing business,” Mugaga said.
He said as a result of the cash shortages, most companies are now in “static mode” further undermining production.