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Response to the cash shortages
Crisis in Zimbabwe Coalition
January 07, 2008

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1.0 Introduction

On the 31st of December 2007, the Reserve Bank of Zimbabwe Governor, Dr Gideon Gono made a public statement on the cash crisis bedeviling the nation for the past two months. Amongst the bulk of threats to the financial sector, the public and the industry, he reinstated the ZW200 000 bearer's cheque note which was supposed to seize being legal tender on the same day. The paper seeks to interrogate the rationale behind the central bank's lack of coherence and its effects to the business confidence and the public at large.

2.0 Key highlights of the RBZ statement

The key issues which were highlighted by the governor in his typical verbose and remorse 'lecture' to the economic players, the financial sector and the public at large are noted below:

a) 98% of the cash issued in the economy was no longer flowing back to the formal banking system

b) The deepening cash crisis in the country's banking sector is now inconveniencing the majority of depositors and the general public as they could not readily access cash for every day transactional use.

c) That there is a prevalence of covert and overt destructive speculative and illicit foreign exchange parallel market trading, and the smuggling of precious minerals out of the country on the back of cash transactions

d) Politicians and senior citizens of our society must be exemplary to their constituencies, followers and society in general . . . it is noted and acknowledged that not all politicians and seniors in our society are destabilizing the economy but the few that are doing so have gone on a rampage . . . "we know that many of you do not want to be told in your faces that you are doing this and that. Please understand that information will always gravitate towards a point of credibility and action . . . "

e) The RBZ is confident that the cash crisis will end and continue to be guided by the say die spirit which resides in the slogan "failure is not an option".

3.0 Crisis Coalition response to the statement

Crisis Coalition is deeply perturbed by the RBZ statement and its lethargy in dealing with the cash crisis which has over the years become a perennial problem found in the deep rooted crisis of governance and legitimacy.

We therefore respond to the above five key highlights of the governor's statement in their chronological order.

Firstly, the governor point out that 98% of the supplied money to the economy was no longer accounted for in the banks. He pointed out that the bulk of the money was in 200 000 bearer cheque notes which he alleges is by and large in the hands of cash barons and speculative manufacturers, industries, wholesalers, retailers and bus operators.

In the words of Dr. Gono, the money supply as of the 31st of December 2007 was ZW$ 67 trillion dollars, implying that the accounted for money supply in the formal system was ZW$ 1.3 trillion whilst ZW$ 65.7 trillion according to his statement is floating in the parallel market.

A cursory analysis of the figures presented to the public by the governor indicates that figures are being manipulated and the public is not being subjected to the finer details of the depth of the cash crisis. If the RBZ insists that the money in circulation is ZW$ 67 trillion for a Zimbabwean population of 12 million people, on average a person will be using ZW$5.5 million dollars and the money will run out again.

In our hyper inflationary environment, it's now a reality that a person can not buy a bottle of cooking oil with such an allocation. Equally, the Reserve Bank of Zimbabwe stipulates that the withdrawal ceiling for an individual is ZW$50 million dollars which is way above the index usage of an individual given what the RBZ governor made the nation to believe is the current cash circulation in the economy, the figure is definitely way above the painted picture of 67 trillion as the current cash supply.

Given the fact that the RBZ is allowing a minimum withdraw of 50 million for individuals and 150 million for cooperates, the cash circulation in the economy will be 16 quadrillion which relatively points out to the budget presentation of 2007 which was above 7 quadrillion.

The statistics presented by the RBZ should therefore be constantly revisited, to enable firms and house holds to make informed decisions.

Secondly, the Reserve Bank of Zimbabwe came to the 'realization' that, "The deepening cash crisis in the country's banking sector is now inconveniencing the majority of depositors and the general public as they could not readily access cash for every day transactional use."

The statement is quite sobering when it comes from what is supposed to be a central bank, which by its very nature is supposed to be on top of the monetary situation in the country. When a situation of such a magnitude deepens to an extent when the citizenry wake up as early as 2am to access their money by the closing hours of business, it's a reflection of the failures of monetary authorities. It's a vote of no confidence of the central bank's capacity to perform its duties namely:

• The maintenance of the internal and external value of the Zimbabwean currency[1]
• Issuing bank notes and coins
• Acting as banker of other banks
• Acting as custodian of the country's gold and other foreign reserves
• Formulating and implementing monetary policy

As the banker's bank, the RBZ is supposed to hold the minimum cash reserves, which banks are required to hold. These reserves form part of the monetary base which the banks can use to create demand deposits constituting the largest part of the quantity of money.[2]

It is therefore clear that from the on set, the reserve bank under the leadership of Dr Gono, has not been committing itself to its sole responsibilities by extending its wings to fiscal activities which are supposed to be the domain of the Ministry of Finance. In the process, the Bank failed to keep on performing monetary issues leading to the unfolding crisis.

Equally, the central bank, as the lender of last resort is mandated to meet any cash balance shortages experienced in the money market[3]. However, in the past two months, the central bank, has exhibited that its capacity to do so fell short of expectations.

The statement by the governor that they came to the realization that depositors are finding it difficult to access their money confirms the need for an overhaul of the institution's operations if the bank is to remain 'central'

At this moment, it is necessary to appreciate that the failures by the RBZ have left the entire nation frozen in the cold during this festive season. Traditionally, the people of Zimbabwe travel to the rural areas after a year of hard work for a unison with their beloved ones. This festive season mood was taken away from the country, by a few individuals who failed to perform their jobs which they were entrusted to perform on behalf of the public. In the process the entire nation has been held ransom by a tyranny of small minds with big ambitions.

Thirdly, the governor noted what he chose to call, "a prevalence of covert and overt destructive speculative and illicit foreign exchange parallel market trading, and the smuggling of precious minerals out of the country on the back of cash transactions."

Its now public knowledge that the central bank has been implicated in the parallel market activities, where it has frequently rather than not been accused of acquiring foreign currency to finance the government's international obligations.

In the month of July 2007 the Confederation of Zimbabwe Industries revealed that the RBZ sourced US$ 100 million from the illegal market in its bid to procure and level electricity bills which led to the dollar crushing from USD 1 to USD70 000 to USD1 to ZWD 190 000 in two weeks, an unprecedented 61.11% depreciation of the domestic currency[4]. This triggered a spiral of price increases in the official market as the cost of the USD has a direct effect on the price of fuel in the official markets. The increase in the fuel price had a domino effect on the prices of the economic goods and services, which led to the increase of virtually all prices.

Despite the glaring evidence on the causes of the hyper-inflationary environment, which the country is plunged into, the Zimbabwean government has the audacity to mislead the nation of the causes of such an environment. The government's scapegoat became the business community, which has been at the receiving end of the state's hatred messages, after they declared warfare on them.

There is no merit thereof, in the governor playing the role of a saint. It goes back to the 2003 crisis when the governor saw merit in addressing the symptoms of the banking sector by pursuing indigenous bankers on allegations that they had diverted from their main areas of trade. Is it therefore the RBZ's main area of trade when it ventures in the parallel market and at the same time seeks to mislead the nation that it's doing everything within its power to curb the parallel market? It is therefore logical to call for a system of checks and balance on the way the Reserve Bank operates.

Fourthly, the governor spoke to great length of the politicians who have been fueling the parallel market and what he chose to term illicit activities in the market. He argued that, "Politicians and senior citizens of our society must be exemplary to their constituencies, followers and society in general . . . it is noted and acknowledged that not all politicians and seniors in our society are destabilizing the economy but the few that are doing so have gone on a rampage . . . we know that many of you do not want to be told in your faces that you are doing this and that. Please understand that information will always gravitate towards a point of credibility and action . . . "

At frequent intervals we have had such statements when the governor is accorded space to subject the populace to tirade and rather tedious presentations. The statements are never followed up with action.

If he was serious about what he seeks to achieve, he could have named and shamed them. In the past week, the state media outfits were awash with statements by the governor arguing that he new the politicians in the ruling party were fueling the parallel market. Albeit, he could not name them for what he 'termed the protection of the integrity of his professional ethics'. That's how far serious the RBZ is.

Truly, upon making such utterances, the police should have been eager to question the governor on information which could have led to the arrest of such 'speculative' politicians. If an ordinary citizen was to come up on TV arguing that he/she has information on the cash barons, but will not name then for the sake of the protection of his/her professional integrity, that person would definitely rote in Chikurubi on charges of being an accomplice. However in the case of the RBZ governor, the police will fall a deaf ear, the law has become a farce.

Lastly, the governor reiterated his well recited mantra, "The RBZ is confident that the cash crisis will end and continue to be guided by the say die spirit which resides in the slogan "failure is not an option"

In 2005 the Reserve Bank Governor, Dr. Gideon Gono was quoted in the New African magazine commenting on inflation, " . . . because those of us who know the debilitating effects of inflation know that unless you deal with it, you will still be in difficulties. But it is not for the Governor to judge, let the world judge for itself. At the start of the Turnaround Programme in late 2003, we had an inflation level of 623%, right now we are at 123%, 15 months after we started. You give me any country in the world that has been able to accelerate its process of turnaround, I will pack my bags. Inflation, yes we are on course to defeat it!"[5]

Along the way, the central bank's model of 'defeating' the cancerous inflation has gathered rust. As in the words of the Governor himself, he must pack bags, since he has failed to execute his mandate of keeping inflation levels beyond the 623% margin by then. Currently inflation is above 14 000 %, the highest level in the world. Equally the same, the cash crisis has become yet another cancer which if not managed properly; it will go the same way of inflation.

4.0 Conclusion

The governor must be reminded that any person in every economy deposits money in the banking institutions with the hope that their savings will gain value through competitive interest rates. However, the economic situation in Zimbabwe, depositors are losing out as their money is eroded by the hyper-inflationary levels which define our economic activities. It is therefore only logical for the people of Zimbabwe to safeguard their money in their homes, until and unless when the central bank offers incentives, through competitive interest rate on the depositors

More so, the statement of the Reserve Bank of Zimbabwe lacks statistical authenticity; the figures of the money in circulation are a face banner to justify the governor's lethargy on taking swift action on the cash crisis affecting the country. Equally the same statement was narrow and banked on generalisations rather than factually and objectively addressing the crisis facing the depositors, manufacturers, retailers and the broader economy being constrained from executing their activities due to the RBZ limitations.

Notes

[1] In this regard, the Bank is responsible for the formulation and implementation of monetary policy, directed at ensuring low and stable inflation levels.

[2] By exerting control over the level and composition of these reserves, the Bank can control the quantity of money which the depositors can access at a given time.

[3] The financial institutions concerned usually obtain the necessary cash balances from the central bank through over night loans. The loans are supposed to be provided automatically and unconditionally against collateral of Treasury Bills, Reserve Bank Bills, Land Bank Bills and government bonds

[4] Confederation of Zimbabwe Industries (2007)

[5] "New African, Special Report, June 2005

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