Melody Chikono /Cloudine Matola
After the Reserve Bank of Zimbabwe (RBZ) this week banned EcoCash’s cash-in and cash-out — key services among Zimbabwe’s cash-starved population — analysts say government is now groping in the dark and looking for scapegoats for the deepening cash crisis and escalating foreign black market activities.
Through the central bank, government on Wednesday, however, partially reversed the ban on cash outs and cash ins and imposed a ZW$100 limit per every transaction. In a statement, the RBZ said they would continue monitoring EcoCash agents going forward.
Just last week, the central bank froze accounts of companies allegedly involved in the manipulation of the local currency, a move which has to date failed to calm down the runaway black market rates.
But RBZ deputy governor Jasmine Chipika blamed the small-scale gold miners for fuelling black market activities, saying they were the ones feeding crispy notes on the market. Chipika was responding to questions from delegates at the Institute of Chartered Secretaries and Administrators annual conference in Victoria Falls last week.
Chipika said the weakening of the Zimbabwe dollar against the United States dollar was simply a question of supply and demand, adding that the country needs to produce and export more to solve this problem. This comes at a time manufacturers are failing to produce due to lack of foreign currency to import raw materials, while farmers can no longer afford basic farming implements such fertiliser and seed as inflation rises.
Chipika was asked why cash was not available in banks, but available on the street. In response, she said the central bank was gradually injecting cash, but in exchange for RTGS dollars.
Chipika admitted the central bank was printing more money to purchase gold from the producers, as they were bound by an agreement to pay them in cash.
There are fears in the market that the central bank is printing new notes, a move likely to fuel inflation.
“We need higher productivity in all sectors. We need more exports. The country is lacking financial support from other countries and international financial institutions. New bond notes found on the parallel market largely come from exporters of gold, tobacco and cotton, who are partly paid in cash for the foreign currency they surrender to the Reserve Bank. It was agreed that they will get cash and we print money to finance that.
They are the ones who then take the money and offload it on the black market — they engage in foreign currency buying activities,” she said.
Chipika said the fact that more than 90% of transactions were electronic was a good development, even though it had come about largely as a result of cash shortages following the “dollarisation” of the economy.
However, economist Brains Muchemwa this week told businessdigest that the upheavals on the currency market were as a result of unproductive money, which is being injected in the market.
He said government should stop injecting money into the market that is not backed by correct fundamentals to fund fiscal related activities.
“The wild upheavals on the currency market reflects, more than anything, significant injections of unproductive money into the economy, which money would have been generated by the RBZ mostly at the request of central government,” Muchemwa said.
“The RBZ and government should therefore be at the forefront of protecting the stability of the financial markets by ensuring that they do not inject huge amounts of money not backed by economic activities into the economy to fund fiscal related programmes.”
Muchemwa said ordinarily the beneficiaries who receive huge amounts of money had the capacity to significantly tilt and set new equilibrium levels of exchange rates daily, significantly wreaking havoc when they enter the market.
Another economist Eddie Cross said freezing the activities of the main beneficiaries triggered the market responses, adding that move alone will not address the real problem in the country.
He also said the increase in money supply since June this year caused the rise in inflation and depreciation of the local currency.
Cross noted that the RBZ has increased money supply since June — seriously undermining the IMF programme and targets.
“It is difficult at this stage to determine if we can recover our position. The basic reason for the rise in inflation and the rapid depreciation of the local currency was an increase in money supply. The activities of the main beneficiaries are what triggered the market response and this was the target of the exercise to freeze accounts. However this will not address the real problem,” Cross said.
Zimbabwe Coalition on Debt and Development (Zimcodd) said government should implement monetary policies that address the current economic situation in the country and stabilise inflation rate. The country’s inflation rate has been on the rise since 2018 and it was last measured in June at close to 200% and was at the brink of breaking into hyperinflation.