New notes have little impact on formal sector

The new $2 coins and $5 notes will have a negligible effect on almost every business that needs premises bigger than a blanket on the pavement since the formal sector has long moved from cash to mobile and digital money and loose change in more pockets is hardly going to change that.

Most large businesses, including those with large flows of customers such as supermarkets, have already found the advantages of an almost pure digital economy. There can be very large savings in both security and banking costs. No longer do supermarkets have to hire armoured trucks to take large steel boxes of notes a nd coins to a bank, nor do a surprisingly large number of man hours have to be spent counting, and recounting, piles of notes and coins when cashing up.

And even the security manager can concentrate on other duties, rather than worrying if there is a dishonest teller skimming the cash, or even armed robbers planning a raid. Few criminal gangs are stupid enough to risk 10-year plus jail terms on the off-chance they can steal $50 in bond notes. That must be especially welcome for service stations who used to take more than their fair share of robberies.

These advantages were already discovered elsewhere. Scandinavia generally has a cashless culture in the retail trade.

Many shops in Sweden especially, but also in Norway, Finland and Denmark even have notices telling customers that they no longer take cash, wanting everyone to use plastic. This not only cuts banking and security costs, but also for the smaller and medium businesses means that their bank is also their bookkeeper.

As Zimbabwean businesses are also finding, having revenue banked instantly has a lot of cashflow advantages.

So larger Zimbabwean businesses, while not refusing cash, are likely to prefer customers who pay through their phone or card. The couple of modest gains from a small flow of cash, being able to ensure staff can have enough to get to and from work and being able to cope with the Mbare wholesale market on the weird two-tier system should vanish as more notes and coins start circulating.

This ending of the two-tier pricing by vendors and tuckshops will also restore a level competitive playing field. And that perhaps is the major positive effect on the formal sector who suffer from the lack of enforcement of loopholes exploited by informal traders, ranging from illegal pavement vending through illegal two-tier pricing. If there is no advantage in breaking a law then the law will not be broken.

There have been observations that a pure cash business can avoid legally the 2-percent transaction tax. But this, as you move away from the pavement into proper premises, carries other costs. A large business cannot keep safes full of small-denomination notes, and even if there were high-denomination notes, that would entail strong boxes under guard overnight.

In the days when so much business was cash, businesses used to bank cash frequently during the day, simply for security reasons. And if there was ever a return to such a state of affairs, frequent banking would return as well, so the transaction taxes would still apply. These are a costs that has been calculated in now into all business operations. Most businesses are perfectly aware that around half their outgoing payments are going to attract the tax and have added the 1 or 2 percent they reckon they need. This, incidentally, was not a significant source of recent inflation.

The obsession by some with cash is strange now that everyone in Zimbabwe not only has a good service for mobile money and many, especially in urban areas, have at least one piece of plastic.

The main advantage that cash does have is make untraceable transactions. And for some this is still a priority. Tax authorities around the world dream of the totally cashless economies, where every transaction appears in at least one database and in a serious tax audit those records can be ordered for production. This is why the informal economy still flourishes in even the most developed countries because cash payments can just disappear under a mattress after some moonlighting by plumbers, electricians carpenters and the like. If everyone went digital tax authorities could check everyone.

We have already seen a bit of this in other areas, maintenance cases at the civil courts. Normally a pair of separated parents arguing over how much money is available for their children had to take a lot on trust. Now magistrates just sigh and adjourn the cases for a day or two saying they want the EcoCash and bank statements. A few minutes examination of these, a couple of questions, and fair and decisive orders can be made.

Besides those wanting to make income disappear from the Zimra radar, there are others who value anonymity. Few hiring a prostitute are desperate to give out their real name or banking details or leave a record that anyone from their wife downwards can examine. The same goes for those wanting a few joints of mbanje or involved in other legal or embarrassing transactions.

But this is no reason why we should not continue working towards the cashless economy and make banknotes and coins curiosities like postage stamps. You can still buy stamps in a post office, and there are small sales because you cannot email or text a parcel.

But generally businesses have dumped the postal system and there is a now a generation of young adults who have never bought a stamp or posted a letter, although they are compulsive communicators. In time bank notes will be in a similar state; you will be able to get them at a bank but no one will actually want to do this.

The Reserve Bank of Zimbabwe, while opening up a new supply of notes and coins, fairly obviously does not expect an expansion in cash business and is actively discouraging this. The largest denomination remains at $5, useful for a kombi fare or a few pavement tomatoes but not really desirable when buying anything of serious value. Wandering around clutching a suitcase of cash is both hard work and tends to attract the attention of criminals.

The expansion in circulating cash seems purely to meet the minimum basic demand for the time being to break the premium offered for cash and the two-tier pricing in sections of the informal economy. That it might well do, but the RBZ and others might want to still keep up the pressure for a cashless economy and ensure the correct technologies are standardised and available.