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Dr Mangudya

Business Editor—
The Reserve Bank of Zimbabwe will this week announce policy measures to deal with the problem of cash shortages which have been experienced in some banks. The measures will deal with the restoration of the fundamental principles of the multi-currency system to ensure that the burden of demand for cash is spread among various currencies that include the rand, euro among others within the multi-currency basket.

“The market-friendly policy measures are going to focus on the sources, distribution and utilisation of foreign exchange in Zimbabwe,” said RBZ governor Dr Mangudya. The intervention from the central bank comes as selected banks (POSB, CABS, Agribank and FBC Bank) have cut the maximum withdrawal limit to $200 and $300.

The shortage of USD cash in the country is attributable to a number of factors that include the depletion of bank nostro balances and the dysfunctionality of the multi-currency system as the country is now predominantly using USD for almost all transactions.

The USD has substituted all the other currencies such as the rand, pound and the euro which were in use at the commencement of the multi-currency system in 2009. Dr Mangudya said the switch from other currencies to the USD is due to its strength which is now considered to be a safe haven currency throughout the world. He said the strong USD has made Zimbabwe to be a high cost producing country and a very expensive tourist destination.

“This scenario which started in 2012 /13 has continued to make it cheaper for Zimbabwe to import than to produce while at the same time increasing the demand for cash for purposes of transacting. The strength of the USD also encourages hoarding and exportation of cash since it is a safe haven currency or asset. In the case of Zimbabwe, the USD has become to be more of an asset or commodity than a medium of exchange. Unfortunately all other nationals throughout the world are in search for the same asset,” he said.

The improvement in the production of gold by artisanal miners and the increase in tobacco sales by small scale producers is also contributing to the high demand for cash.

While Government is happy with the increased level of gold and tobacco production by the small scale producers it is saddened by their immediate demand for cash as it puts too much pressure on the financial system making both banks and the nostro accounts wash, that is, to receive in order to pay out.

Dr Mangudya said drought induced import requirements have also increased the competing demand for foreign exchange. “To date $80 million has been used for the importation of grain. The increase in these imports is at a time when the international commodity prices for gold, platinum and diamonds are depressed,” said Dr Mangudya.

In addition to the measures to restore the functional principles of the multi-currency system, the RBZ will be putting in place an import priority list, through banks, to ensure that foreign exchange is utilised for productive purposes and not for trinkets and/or goods and services readily available in Zimbabwe such as maheu, water and tomatoes, among others.

“RBZ has already agreed with the business community represented by the Confederation of Zimbabwe Industries, the Zimbabwe National Chamber of Commerce and banks on the import priority list. The measures to be announced by the RBZ will also address the competitiveness of the local industry in order to encourage production within the economy,” said Dr Mangudya.