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There have been unsavoury developments in the banking sector where many people have not been able to have full access to their money due to prevailing cash shortages.
The development has caused anxiety among the banking public that may have been caught off guard and this brings reminders of similar experiences with banks in the past.
Throughout the past week banks have been limiting daily withdrawals at $500 in the process inconveniencing customers.
What it also did was to expose the lack of proactive measures by banks and the central bank. Authorities should have seen this coming and put in place measures to mitigate the impact of the liquidity crunch, given its potential to dent the little confidence that was slowly returning.
We are all aware of the economic situation in Zimbabwe. For starters, Zimbabwe uses a basket of foreign currencies dominated by the US dollar, which the country does not print.
The central bank should keep its hand on the banking sector’s pulse to ensure financial institutions have, at any given time, reasonable stocks of cash to meet their daily obligations.
Some of the ways in which Zimbabwe earns its liquidity include exporting, foreign direct investment, Diaspora remittances, external grants, portfolio investments and lines of credit.
While Diaspora remittances have performed well over the years other sources continue to wobble. Generally, strained relations with the West, sanctions and demonisation by a hostile media has seen little foreign liquidity flowing into the domestic economy, despite the country’s huge potential, as investors remain apprehensive.
Government has found itself struggling to either finance economic activity to boost export earnings or attract FDI while the depressed economy means portfolio investments have also been declining because companies are not doing well.
At a micro level, the liquidity crisis has been stimulated by growing demand for cash and ungoverned penchant for carrying physical cash, which in instances boils down to speculation.
Public service obligations at month ends, gold purchases from small-scale artisanal miners who prefer cash immediately after selling their bullion and the country’s huge import bill have conspired to worsen the liquidity situation in the country.
In the final analysis, three things must become priority for authorities going forward. These include proactive measures to ensure that banks are not caught off-guard as far as demand for cash is concerned, as this further damages trust in banks.
A situation that creates panic is dangerous to the banking sector, as this has potential to trigger a run on deposits and collapse of otherwise strong banks, vital cogs for oiling the economy.
There is also urgent need to expedite economic policy reforms to ensure industry produces at significantly lower cost for competitiveness and to target export-led growth for liquidity.
Thirdly, the RBZ needs to act with more urgency in its efforts for financial inclusion of the unbanked, including small-scale farmers and artisanal gold miners, who prefer spot cash after selling their produce.
It is, however, soothing that the RBZ has indicated that it is frantically working with banks to import more cash to ease the crunch, but is urging use of alternative payment platforms to avoid putting pressure on the demand for limited cash.
The RBZ will also work with the African Export and Import Bank to set up a nostro (foreign bank accounts for imports) and export support facility to make sure imports do not continue to suck liquidity from banks, causing the cash crisis.
Bongani Ndlovu
Online Reporter