Some claim that there was under a million US dollars of physical cash circulating in the economy, although Finance Minister Chinamasa is more optimistic. Much of this is not in the banks, as many prefer to store it themselves, and significant amounts may have already left the country, so it’s difficult to know.
But bank queues and limits on withdrawals (down at one stage to $50 a day) were witness to the troubles being faced. The liquidity crunch is severely hampering business and constraining investment, so boosting cash supply must be a good thing.
However many fear the gradual conversion to a local currency, while hard-earned US dollars are siphoned off from bank accounts to service the government’s massive debts. It is no surprise that many commentators remain sceptical.
While the present RBZ governor, John Mangudya, is no Gideon Gono with his wild ‘casino economy’ of the mid-2000s, the severe economic crisis, combined with huge corruption, suggest desperate moves are possible, especially if pushed by political circumstances.
It is also worth reflecting on some of the potential benefits of this controversial move. While many have moved to cashless exchange – just as Greece did during the euro crisis and India is trying to do now – the lack of hard cash in circulation can affect exchange.
I was in a resettlement area the other day, and one of my colleagues bought two buckets of sugar beans for $40 using an ecocash transfer there and then, thanks to both parties having accounts and there being 3G network.
But not everyone has a mobile ecocash account, an electronic ‘wallet’ on a smart phone or a swipe card linked to a bank account, although in a very short space of time out of necessity increasing numbers do.
As we enter the farming season, having small dollar denominations that are valid sources of exchange is vital for buying inputs, marketing crops and for day-to-day supplies. Going to the grinding mill, buying a cup of beans, securing a bag of fresh termites or purchasing a bowl of maize flour cannot be done without.
You can already see the changes happening as cash circulates again, particularly in rural areas where such exchanges are so vital. Keeping the bond note introduction to small denominations, up to $5 (although we haven’t seen this one yet – apparently with giraffes on the note), seems to make much sense, particularly for those outside the electronic exchange economy.
We will however fear the worst if denominations creep up, and hugely divergent parallel markets emerge. We all remember how notes and bearer cheques increased in the 2000s, with so many zeros that cash machines couldn’t cope.
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