While answering questions before Senate last week Finance Minister Mthuli Ncube hinted at the desire of the government to introduce high denomination Zimbabwean dollar notes. This comes on the backdrop of many business rejecting bond coins wholesale. Amongst them critical sectors such as informal traders and transport operators. Meanwhile, Reserve Bank governor John Mangudya blamed the unpopularity of the bond coin on inflation making it necessary to carry unwieldy amounts to satisfy simple transacting needs.
The finance minister was responding to a question in how his department planned to deal with players in the economy who refused to accept Zimbabwean dollars in favour of US dollars. The minister pointed out that the small denominations of notes presently in the system. He expressed his belief that higher denominations would make transacting in the local currency more favourable as this would also address the problem of carrying large sums and cash availability. He reiterated the plans to introduce additional cash into the system to meet cash requirements.
Currently, cash in circulation is estimated at $880 million dollars against a requirement of somewhere between $1.9 and $2.5 billion if the money supply holds steady. $80 million of the current cash in circulation is in the form of coins. The finance minister also pointed out again that the coins were being drip-fed into the system via a swap for RTGS balances which meant that they would not increase the money supply. Does the common-sense question then beg that if the RTGS balance swap is not inflationary why not introduce the entire requirement of $1.1 billion and end the scourge of cash selling and its cause cash shortages in one swoop?
The minister, perhaps on purpose underestimates the reasons traders have opted for the US dollar for transactions. Of course, the strength of the currency and its meaningful denominations are certainly factors but it also provides a store of value which the Zimbabwean dollar whether as the bond note or in its 2019 reincarnation has simply failed to do. Losing over 80% value on the parallel market in the year 2019 has made it a very poor store of value. Informal traders may also prefer money that is outside of the banking system for reasons best known to them. Cash is scarce and accepting electronic payments puts the money in the control of the government via the banking system. It is only in February 2019 that the reintroduction of the Zimbabwean dollar came with losses of value as accounts which held US dollars had the amounts translated to Zimbabwean Dollars at 1:1.
On the issue of the coins, Mangudya stated that the coins are meant for change and not for people to carry around and use for transacting. A noble and noteworthy point. They make up. only 10%of the cash in circulation and should be for providing change and allowing pricing that goes down to the last cent. However so great is the extent of cash shortages that the coins are what is available to people.
2019 has been an eventful year in the monetary space and 2020 may be a period of relative calm if Ncube is to be believed. However, the situation is likely to necessitate some action on the ministers part sooner rather than later.