The Sunday Mail

Kuda Bwititi
Chief Reporter

Banks have to continuously draw cash from the central bank to ensure uninterrupted supply to depositors, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya has said.

New cash and coins — consisting of $2 notes and coins and $5 notes — were released to the market on November 12, with the first tranche of $30 million having been exhausted already.

Banks continue to be overwhelmed by expectant depositors, most of whom have to queue for hours on end to make withdrawals.

Currently, there are 100 000 account holders in Zimbabwe.

Withdrawal limits remain pegged at $300 per week for individuals.

Monetary authorities plan to release $1 billion in cash and coins over the next six months, which translates to an injection of more than $166 million per month.

“We will continue to disburse the money according to the needs of clients.

“It means if there is a shortage, the banks should come to the Reserve Bank to get the money for their customers,” Dr Mangudya told The Sunday Mail.

“The customers belong to banks, and not the RBZ. My customers are the banks. The customers who are lined up in the streets are bank customers . . . our job is to dispense money and put it on the market.

“The mechanics of the distribution of money are that individual banks come to the Reserve Bank to get money for their customers in exchange for the RTGS (electronic) balances.”

Financial institutions are swapping their RTGs balances to unlock cash from the apex bank, a process that is believed to be non-inflationary, as the stock of electronic money that is being replaced is already in circulation.

Central banks usually generate profit through seigniorage, which involves charging the difference between the face value of cash and coins and production costs.

Presently, commercial banks are buying cash from the RBZ “on a one-for-one basis”.

Exemptions

The rollout of new cash has not been without controversy after two banks — Ecobank and CBZ — were implicated in suspected cases of unprocedural disbursements to clients, as they reportedly authorised withdrawals that were above the prescribed limits

Investigations are still underway.

Such practices, Dr Mangudya argues, are not uncommon.

He said: “Some clients can ask for permission to get more from their banks, depending on the nature of their business. Exemptions are allowed. For example, those who sell gold to Fidelity are paid in cash, so it is not the duty of the RBZ to follow them to find out what they do with their money.”

Depositors, however, believe that discretionary withdrawal limits, especially without regulatory oversight, often open the window for abuse.

But Bankers’ Association of Zimbabwe (BAZ) vice president, Mr Ralph Watungwa says members of the public have to play a part by reporting “any suspected abuse for investigation to ensure that our financial systems remain secure”.

Both banks and the central bank have foolproof systems to ensure cash is not funnelled to the black market.

“The banking sector, working with the central bank, has due diligence processes to make sure that the cash is dispensed for bona fide purposes. It is, however, important that the public play their part in ensuring that the notes continue to circulate on the official market.

“The banks and indeed the central bank have dedicated ‘speak up’ platforms for the public to report cash abuses.”

Actively promoting production, Mr Watungwa said, was the tonic needed to support the value of the local currency.

“We need to promote productivity across all sectors of the economy because it is the national productive output that supports the value of our monetary assets, which include physical cash,” he said.

Before the recent intervention to pour more cash into the market, the cash that was in circulation made up only 5 percent of the amount of money that was in the system.

The resultant shortage led to the emergence of cash barons who sell money to desperate consumers at a premium.

The progressive injection of cash has seen the premiums tumble from 60 percent to the current 30 percent.

A recently reconstituted advisory body to the RBZ — the Monetary Policy Committee (MPC) — believes that by eliminating the sale of cash most of the price and economic distortions would be addressed.

Mr Eddie Cross, an economist and member of the body, told The Sunday Mail that if the premiums do not disappear, the central bank should consider printing more cash for exchange purposes.

“In our first meeting, we noted that there was a premium on cash in the market. The RBZ had already printed a large sum of cash in $2 and $5 denominations, and had minted $2 coins. We authorised the immediate release of this new cash into the market on one condition — that the cash is only distributed via commercial banks, and that the banks buy the cash on a one-for-one basis. In this way, the exercise does not increase inflationary pressures in the market.”

US dollar pricing

The committee is concerned with the continued pricing of goods and services in US dollars as this is not only feared to make local products uncompetitive on the export market, but would likely affect the country’s balance of payments — the difference in total value between payments into and out of a country over a period — as well.

“If you dollarise you lose control of monetary policy. In addition, you lock in your cost structures and most often become uncompetitive in export markets. It is also very expensive to buy dollars as you have to pay for them from your US dollar-denominated nostro accounts. This affects your balance of payments . . . Having our own currency is very much better for us as a country, providing you have policies that result in the currency being stable. That is the main problem in Zimbabwe at present.”

In the past 12 days since the new notes were injected into the market, rates on both the formal and black market have remained steady.

Expectation

Depositors, however, continue to queue for cash.

Ms Cecilia Chapfihwa (53), a depositor with Stanbic Bank, said most people make a beeline to banks early in the morning for a chance to make a withdrawal as the cash oftens runs out.

The bank was reportedly issuing a maximum $100 per individual.

Other banks were issuing as little as $50.