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A CASH crunch has hit the economy with banks introducing stringent cash management systems including limiting maximum cash withdrawals to $500 per transaction and switching off some of their ATMs.
We can’t say this is surprising given the strengthening of the United States dollar against other currencies. When Zimbabwe adopted the use of multiple currencies in 2009, the move gave the economy room to breathe and brought stability which was absent during the hyper-inflationary era.
But the firming of the greenback over the years has come at a huge cost to the Zimbabwean economy. All of a sudden, Zimbabwe has become a magnet for cheap imports.
Instead of aiding in improving capacity utilisation in industry, the US dollar is now an albatross around our necks and is weakening the economy. Local companies are unable to compete with cheap imports and are finding it hard to stay afloat. The cash squeeze is symptomatic of a slowing economy with businesses recording low volumes. Trade with South Africa, Zimbabwe’s biggest trading partner, is now heavily skewed in favour of former due to the weak Rand.
Zimbabwean products are not competitively priced compared to regional economies because of the high cost of production, labour and other factors. In an economy operating in a tight fiscal space as ours, a liquidity crisis is inevitable and Zimbabwe is now paying the price for not having its own currency. We reported yesterday that even the ZimSwitch facility had been disabled and customers were unable to receive cash backs from some supermarkets.
Tobacco farmers have been hit hard and after being directed by monetary authorities to open bank accounts last week, they are unable to access their cash.
The Reserve Bank of Zimbabwe has attributed the cash challenge to a spike in demand precipitated by the payment of salaries and bonuses to civil servants but we believe this is part of a bigger monetary problem.
RBZ Governor John Mangudya said: “As the central bank, our key function is to ensure financial stability in the economy and that people are able to get their money when they want it. We are aware of the situation and the high demand for cash because of salary and bonus payments (for civil servants).”
He said banks had been requested to increase their cash imports. “However, importing cash is not an overnight event… it takes time but we are confident that the banks will be able to sufficiently meet the requirements of the banking public.”
The central bank governor encouraged the banking public to use plastic money, particularly given that the country was using multi-currencies, which it did not print and control.
“I also urge people to use point of sale when transacting. It is a national responsibility for everyone; especially at a time we are not in a position to print money. There are local business-people that do not bank their daily takings, preferring to keep the money in safes at home, fueling cash shortages,” he said.
Zimbabweans generally prefer keeping and transacting in hard cash even though there are some alternative payment systems such as point of sale and mobile platforms. It has also been observed that the country has low confidence in the banking system following the loss of savings after the transition to the multi-currency system from hyperinflation.
There have also been concerns about transaction charges on the various platforms such as POS, mobile money platforms and the fees of maintaining bank accounts (which in turn results in highly short-term deposits).
We agree that these are all contributory factors to the cash crisis bedevilling the country but still contend that the use of a strong currency such as the US dollar in a generally weak economy is self defeating.
Zimbabwe needs to increase productivity in industry and for this to happen, we need to find ways of dealing with a strong currency which unfortunately is militating against efforts to improve capacity utilisation.
The ease of doing business needs to improve while the cost of labour and production needs to come down so that local products are preferable to imports on the market.
In the meantime, we urge business-people to adopt a culture of banking their takings in the formal system so that the cash crunch can ease. We also call on monetary authorities to improve confidence in the banking system by among other things, cutting interest rates and leaning on banks to reduce charges.
Zimbabweans are generally wary of banks following the traumatic events of the hyper-inflationary period. Their trepidation is understandable after they lost substantial savings when some banks closed but we encourage them to use formal banking systems.
We also support the use of plastic money but this might be a challenge in an informalised economy such as Zimbabwe.
Online Reporter