Bank executives believe a threshold of 20 percent of total deposits is needed to meet depositors’ hard cash requirements. Hence the ‘cash crisis’ that has intensified since the beginning of the year.
“With such a large shortfall in ‘hard cash,’ the first question we asked is, “why hasn’t the banking system collapsed already?” The answer to this question is a rebuttal of the myth that the Government of Zimbabwe cannot print money,” Exotix argues.
Official statistics show that government securities held by the banking sector rose from nil in 2009 to $1.2 billion at the end of April 2016.
“As the principal and interest payments on these government securities are settled on the RTGS, it is clear that the government has been using the issuance of this debt to effectively print money. This money printed and placed in the RTGS has helped keep the RBZ liquid in local US dollars,” Exotix said.
A Harare-based financial analyst who refused to be named for professional reasons, concurs.
“The aggressive issuance of TBs by government has had the effect of sucking liquidity out of the market. Ordinarily, governments print money to fund their domestic borrowings, but in this case, the issue of TBs has effectively become a de facto money printing exercise,” he said.
Finance Minister Patrick Chinamasa has denied that government’s increased reliance on TBs had contributed to the bank note shortage. He insists that government has consistently made good on maturing TBs, a factor which major banks – CBZ and ZB, who both hold over half of total TBs in issue — have backed up in recent weeks.
However, the opposition accuses the skint government of manipulating the RTGS system to pay its ballooning domestic debt.
Exotix identifies two types of US dollars in Zimbabwe’s economy – physical banknote dollars and Real Time Gross Settlement (RTGS) dollars, which are reportedly trading at 1:1.10 to the greenback on an emerging black market for those who want to cash in on their RTGS dollars without the inconvenience of cash withdrawal or time limits.
The firm says the ‘disappearing deposits’ have simply been converted into RTGS dollars, now effectively Zimbabwe’s local currency.
The financial strain under which the government finds itself provides a major test to its stated resolve to maintain discipline and not print unbacked currency beyond the $200 million facility.
History, in the pre-dollarisation period and, more recently since 2012, suggests this is a test the Mugabe government is unlikely to pass.-The Source
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