Once the governor explained that half of export proceeds would be channelled through the Reserve Bank, the citizens recalled a similar practice in 2008 – and nervousness turned into panic; made worse by an announcement that cash withdrawal limits would be severely curtailed in order to stop outward US$ cash flows out of Zimbabwe.
On 5 May 2016, commercial banks started dealing with irate citizens wishing to close their accounts and empty all the cash they had; but could not if the account had more than US$1,000 (maximum daily withdrawal limit). Queues for cash at banks started building up slowly, but grew longer as banks failed to even meet the daily withdrawal limit allowed by the RBZ.
By 31 May 2016, one international commercial bank had closed most of its ATMs and set a US$300 daily withdrawal limit for individuals and was even suggesting that a weekly limit of US$500 be put in place; while a second international bank had introduced a US$500 daily limit and a new rule that customers would have their identity documents inspected before they could withdraw money from the ATM.
My three-day attempts to withdraw cash from the ATM ceased after realizing that the ATMs were always out of cash whenever I went there.
So how did we end up with low reserves of US$?
- First, the country imports twice what it exports; so the banking system has experienced short-term cash shortages while waiting for remittances and other inflows to build up.
- Secondly, government has resorted to issuing Treasury Bills – a promissory note while available cash is used to meet expenditure needs – only to make the cash shortage worse.
- Thirdly, the fifteen-year economic decline has left the economy poorly placed to cope with declining global commodity prices.
The market had over time adjusted and worked around this steadily deteriorating cash shortage – until unusually long bank queues towards the end of April 2016 convinced the government that action was needed: and the press conference of 4 May was held.
With Treasury bills sucking the limited US$ out of the system, the electronic money transfer system operated by the RBZ to facilitate external payments found itself without the resources needed to fulfill customer requests, and importers of raw materials found themselves in trouble; and shortages of some commodities are re-appearing – a pre-2008 phenomenon.
Low exports have resulted in low US$ inflows, high imports have led to high US$ outflows, and the demand for US$ around the region has put more pressure on available cash as traders and other travellers come to Zimbabwe to collect US$ from their international accounts or from the sale of goods.
Commercial banks, suffering as a result of low economic activities in the country cannot bring fresh US$ fast enough to meet the demand, but the market had until 4 May adjusted to this strange equilibrium.
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