Minister Supa Mandiwanzira speaking at the Mobile Money and Digital Payments event acknowledged that the government is aware of the 3 tier pricing model prevalent in the market. He did not however elaborate on what the government is doing to combat the issue.
What is the 3 tier pricing model? This is where you are charged differently depending on which mode of payment you are using. That means different prices for swipe, cash (bond notes) and cash (foreign currency). We all have experienced this. This practice is illegal but with most trade happening on the informal market the government is hard pressed to combat the issue.
This 3 tier pricing is probably the biggest reason the demand for cash is so high in Zimbabwe. It is cheaper to pay using cash so why would one use any other method?. This leads to what the minister called abnormal demand for cash, especially in comparison with the rest of the world.
The minister said that Zimbabwe does not have a cash crisis but a confidence problem. There is no confidence in a cashless society. This just means people don’t trust banks. This is true and is also one of the reasons why the majority withdraw any monies they receive as soon as available and do not deposit. After the bank failures we all witnessed in the last decade, you cannot really blame them.
The RBZ met with bankers and formal retailers to brainstorm solutions but as alluded above, most trade in Zimbabwe happens on the informal market which is hard to regulate and police. The formal retailers agreed to stop the practice and some meant it but 3 tier pricing is alive and well as we all can attest.
The government should incentivise the use of alternative payment methods as minister Mandiwanzira rightly noted. As it is there is incentive to use cash but if this was turned around and there was, say a 20% premium for those that accepted payment via bank transfer this could reduce the demand for cash. If you could pay for more via transfer than via cash even the stubborn retailers in the informal sector would have reason to not demand cash.
Some proposed making it illegal to operate in Zimbabwe without a licence thereby ensuring there is no informal market. This is not wise. The government first has to reduce the requirements for an organisation to be registered and also to revise its tax rates. Unless this happens there will be no buy in from informal sector businesses.
The issue of lack of confidence in a cashless society is harder to combat and with the exorbitant bank charges and mobile money tariffs driving people away from non cash payments, the task is made much harder.
What do you think it would take for there to be uptake in non cash payments? Would a 3 tier pricing model reversed to incentivise non cash payments have the required effect? Let us know what you think.
7 comments
I for one believe the 3 tier system is self correcting in the end. While goods may appear cheaper when bought using cash there is a cost to acquiring that cash which has to be factored in. Consider this:
1) A good is priced at $10 cash
2) The same good costs $11 using bond notes
3) You will be charged $12 for swiping sans the costs
When we factor in the cost of acquiring cash:
1 and becomes $10×120% $12 plus whatever premium of obtaining the actual USD which will put costs at around $13
and $11 x 120% =$13.20
3) $12.20
So swiping is still at par with the other mods of payment. Demand for cash is being driven by imports due to a non functional domestic sector not by the 3 tier system as you allege. Since bond notes cannot be used to import there is pressure on an ever declining USD reserve. The government through banks no longer processes international payments fast enough forcing informal traders to chase after cash.
The explanations proffered for the cash shortages show lack of appreciation for basic economic principles on the part of the government. But in this day and age that is no longer surprising at all.
Zimbabwe’s curse is its dull leadership.
https://www.forbes.com/sites/stevehanke/2017/07/31/zimbabwe-from-disaster-to-disaster/#6beb4dba221a
As a coporate I agree with the above…. How do you replace stock… Easy with cash… Secondly why would I leave my hard earned money in a bank account… Is there any incentive at all…I mean really if I leave 100 for one year will it shrink it grow…. No bringer really and poorly written one sided article
The single biggest impediment to economic recovery is the rbz. The povo must find an innovative way to make the rbz irrelevant and we will see things improve almost immediately. A day is coming when a global player like whatsapp or facebook will facilitate fast and simple P2P payments between people no matter where they are on the globe – then there will be no need for cash because these transactions will be in a currency that the central bank cannot corrupt. Imagine if you could pay someone as easily as sending a chat message and the value was stored in the whatsapp network. Imagine if every retailer on the internet would accept a whatsapp payment. Would govt resort to banning it? Remember nyaya ya Rutsoka naHandishai? You cannot go hunting with someone who contributes nothing but then wants to take the bigger share of the kill. This is what is happening right now in the banking system. There are those banking genuine money and those infusing it with bonds notes (and rtgs balances) that they just conjure out of thin air. Once the money is mixed, it can no longer be distinguished who contributed what and those who contributed genuine money are forced to accept worthless paper while those who contributed the worthless paper (but are in charge of the system) take the real money. Under such a scenario, who can blame Rutsoka from refusing to hunt with Handishai?
You are right there and the disruption to the cash printing and central bank model is already here. Bitcoin is that peer to peer payment system you mentioned and you can join in today, here in Zimbabwe. There is no central bank creating who knows how much money out of thin air by printing and the growth in supply is controlled and transparent. Bitcoin and other cryptocurrencies are the future.
Be practical! You are already struggling with POS and mobile money penetration at merchant level, you want to throw BitCoin into the mix? Nonetheless, as processor speeds increase, it’s easier to mine BitCoin now and it will continue to be easier in the future. Mining is the “printing” of BitCoin, and in my opinion that will be it’s downfall. https://blockchain.info/charts/total-bitcoins
You are right in saying Bitcoin is complex, there’s no denying that. The issue is not complexity but rather accessibility. We all can access Bitcoin and use it to make it payments today. You will need to educate yourself first of course. Mining is a different issue which is even more complex and not everyone needs to mine. Indeed it is the minority that mine since the amount of resources needed for mining at a scale that is worth the trouble is steadily increasing. Bitcoin is by no means a flawless system but neither is this other system we have.