There has been a cash crisis in Zimbabwe for years now. The Reserve Bank of Zimbabwe which initially denied that was the case was forced to acknowledge the crisis as queues at banks refused to go away despite the central bank’s best efforts.
With the central bank acknowledging the cash crisis they had to give reasons as to why it exists and only after that could they come up with solutions. In the monetary report which was published in August they gave the main reason as inefficient circulation of money.
They went further as to explain that the reason for the inefficient circulation is the informal sector, the parallel (black) market.
See it is important to identify what the problem is and what is causing it before you come up with solutions.
What the World Bank and IMF think about the Zimbabwean cash crisis
The World Bank sees the problem clearly: fiscal indiscipline.
The government faced with paltry revenues resorted to excessive borrowing, utilised its overdraft facility and issued Treasury Bills to raise funds. The overdraft facility which entailed the RBZ would through the RTGS electronic system credit bank accounts of payment recipients. These transfers were of course not supported by cash reserves
The effects of the above was best put by the IMF,
These transactions increase deposits in the banking system, but without a concomitant increase in the quantity of US dollars available in cash or external (nostro) accounts. To finance the remainder of the deficit, the government issued T-bills, mainly acquired by commercial banks but also used as payment for services.
The Zimbabwean government’s expansionary fiscal policy is responsible for the cash shortages. In the process the government crowded out the private sector as there was a 38.67% growth in net credit to government compared to 2% to the private sector.
The Zimbabwean government’s spending is a cause for concern especially the perennial problems with a high wage bill.
What needs to be done?
The biggest problem is that the RBZ is not run independently of political influences. We need the central bank to be free to come up with policies meant to resuscitate the economy and not to support political agendas.
You can clearly see the conflict that the RBZ faces because even when they say the cause of the cash crisis is inefficient circulation of money they also acknowledge that it is government spending that’s really to blame. In the latest monetary report the RBZ said,
The root cause of excess demand for forex, on the other hand, is emanating mainly from increases in money supply as a result of greater spending by government, money-creation loans and overdrafts by banks. It is these external and domestic imperatives or fundamentals that need to addressed to bring equilibrium and resolve the challenges besetting the economy.
You have to comb through the monetary policy to find this tidbit. If asked, the RBZ will stick to the inefficient circulation statement. The governor is clearly in a pickle, he can’t be seen to be pointing the finger at the government and so he finds the next best explanation, one that shifts blame away from the government.
Regarding the hoarding of cash by Zimbabweans, yes, there is that but the World Bank says,
It is about creating trust. Why do I need to keep cash at home? It is because I am afraid that tomorrow I may need the cash and that I may not get it. That is why if I have excess cash I will keep it at home so that if I need it tomorrow I will use it. So overall, it is an issue of creating trust in the economy and that is the responsibility of the government which also should be talking to the people, but more or less acting.
So in short the first steps that need to be taken to resolve the cash crisis include removing government and politicians’ influence in the decision making process of the RBZ, fiscal responsibility which entails managing government spending and increasing productivity whilst attracting foreign investment.
Granted the problems we face cannot be easily resolved but the first step still has to be taken.
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4 comments
It will be a very long haul to create trust in the banking system. Government has failed us, we all know that, but so have the banks. The banks accepted TBs and gave away MY money and YOUR money which we had entrusted to them. Now the banks are all reporting massive profits which they make from ME and from YOU through exorbitant charges for moving electronic digits from one place to another. It might be interesting for Techzim to conduct a survey to find out the level of trust we have with our banking system. Then repeat the exercise in 6 months time.
I lost my debit card and went to apply fr a new one. 3 days was all it would take to get a new one, they told me. On the 3rd day, I was told to check the following day. I went 2 days later and I was told there was a problem with the system. I have worked extensively with card production, PIN generation and Payment systems in general and I smiled to myself. I was tempted to ask which one of these she was referring to, but decided not to. A manager was summoned, there followed profuse verbiage which to me, showed no ability to manage or resolve an issue. I was left wondering what it takes to make it to “management” these days. My last option is now to link my bank account to EcoCash and “airlift” my money from the bank’s claws asap. This is my new modus operandi. The card can only be used to withdraw cash once a week ($40) but swiping is the most convenient. There is zero motivation for using banks these days, unless you get a loan and become their slave until you fully repay it. Customer or even Banking Service is at zero. Most people are manacled to banks this way!!
The longer it takes for a new President or acting with Presidential powers the worse the country is going to get. Has no one learnt by now? Day 2 still nothing. We need action today not tomorrow. I only earn 400 bond notes a month. I want to earn 400 USD a month. The world and a good majority of Zimbabeans are behind this. PLEASE
First of all, i would like to say, those of you who think there will be a “new” Zimbabwe are deluded. You think , the current President has been cornered , in fact i see it the other way round. The military is in a bind, Mugabe has a legitimate argument that he has a constitutional mandate. The military know that if regional and/or international forces come into play they are at a disadvantage because they are trying to remove an elected Head of State, no regional/international institution or country wants to be seen supporting a coup. Time is running out for them, the longer this silence continues the more precarious it is for the Generals. Mugabe knows this and will use it to his advantage. With each passing day it is clear he will not resign, the only legitimate way to remove him is through a vote of no confidence passed in Parliament.
Lastly , i donot understand why Chiwenga is seen as our saviour all of a sudden , when it is him and his compatriots who forced the current leadership on us, they are just as guilty as Moyo, Chombo,Kasukwere et al are for causing the rot that exists in the country. This pseudo coup is just them trying to force a new leadership on us.