Reserve Bank of Zimbabwe Governor Dr John Mangudya correctly noted this week that people will not be forced to use his much-heralded bond notes: they will be able to use “plastic”, that is electronic transfers, to move US dollars between bank accounts. Already, with the shortage of US dollar banknotes, most people have switched to plastic for everything that they can use a card for and with the significant reduction in transfer costs that Dr Mangudya pushed through this is a fairly cost effective way of buying stuff.Even if ATMs were full of bank notes 24 hours a day it would now be cheaper for many transactions to use plastic rather than notes, considering that the ATM withdrawal charges were not reduced.
But to go for a fully plastic economy a couple more changes are needed.
The technology that Zimbabwe needs for a pure plastic economy is already in place. All banks issue Zimswitch cards to all customers, and all three mobile phone licence holders have a simple and cheap system of moving money between the electronic wallets any of their customers can create by filling in a form.
Mobile phone ownership in Zimbabwe is close to universal. Out of the eight million of so adults there are probably only a few tens of thousands who do not have even a basic phone, and since mobile money works on a $10 phone even these few holdouts can probably buy one.
Africa pioneered and dominates mobile phone money and had the sense to use a phone system that everyone can afford.
What is needed now is a way to link bank accounts to mobile phone wallets, so that money can be transferred from account to wallet and from wallet to account. Even though most Zimbabweans do not have a bank account, are “unbanked” in the jargon, most money entering circulation comes from a bank account and most, even if it passes through a couple of dozen hands on route, will end up in an account.
Such a link between the two types of plastic, full plastic as it were and phone plastic, would also link fully the formal sector, where most payments are already electronic and the informal sector.
The one obstacle for this link is the fact that holders of phone wallets have the right to convert their holdings to banknotes on demand, so agents obviously demand banknotes when people load the wallets. Moving money between wallets and bank accounts requires conversion to cash.
But with the arrival of bond notes the desperate desire to convert to cash will probably dissipate, allowing the final step of integrating the two systems to move ahead swiftly.
No one, outside the authorities who wish to control movement of money over our borders, has expressed any love for bond notes and many have been quite frank in their total distaste and distrust.
Even those who accept that the notes are conceptually just “paper plastic” to move US dollars between bank accounts are not thrilled.
So Dr Mangudya will almost certainly find as he starts circulating bond notes that this will create the opportunity for the final triumph of plastic in all its forms.
He should seize that opportunity to move Zimbabwe to being Africa’s first plastic economy with a few deft regulatory changes.
As he himself noted, the choice will be between bond notes and plastic and we strongly believe that almost all Zimbabweans will infinitely prefer plastic once the final links in the plastic chain are in place.