The National Business Council of Zimbabwe (NBCZ) president Langton Mabhanga has expressed grave concern over the activities of ecocash agents charging a fee over and above the withdrawal amount for people to get cash. The cash out rate, has become quite an issue of debate as many moan about the suffering it has caused. The plot thickens as the Zimbabwe Anti-Corruption Commission, accordingnto the Herald, has squarely taken aim at Ecocash and their agents.

Cash is king

There seems to be an established system through which Ecocash agents operate. They are buying cash from business operators who operate cash only businesses, at rates of say 40-50% for bulk purchase and go on to sell the cash to those who intend to cash out at up to 60%. The unfortunate truth which many are unwilling to face is that Zimbabwe is still a cash based economy. In addition to this Zimbabweans have gradually lost trust in the banking system and would rather have their money safely in cash as opposed in accounts where US dollars were replaced with RTGS dollars in the blink of an eye. Transport operators, tuck shops, vendors and small shops operated by Chinese traders have preference for cash. Even service stations have come under the spotlight for preferring cash.

Dealing with symptoms instead of causes

It is a little surprising that the NBCZ does not include Ecicash agents, they are people in business and if the council does not represent them then who does? With the release of the latest mid term monetary policy on the 13th or September the RBZ published money supply figures and a few things caught my eye. Firstly, according to the RBZ broad based money supply now stands at ZW$15 billion. The RBZ is still unwilling or unable to furnish us with information on how much cash is in circulation I’m the form of bond notes and coins however Mangudya has before estimated it at around 400 million worth. A quick bit of math will tell you that 400 million is only 2.67% of 15 billion.

It is generally held that around 15% of broad based money supply should be available in circulating cash for the smooth running of an economy. One can only imagine that percentage may need to be further increased in an economy which is still cash based and distrusts banks. The authorities here are evidently in a quest to deal with a symptom rather than the root cause.

RBZ to avail cash

The Reserve Bank has pledged to introduce cash into the system, by directly exchanging with banks for RTGS balances. The idea is noble however many question the sincerity of the RBZ in this regard. The government of Zimbabwe has realised budget surpluses since Finance Minister Professor Mthuli Ncube took the bold decision to levy a 2% Intermediated Money Transfer Tax on electronic transactions. Citizens who had turned to electronic money as a saviour during the cash crisis found themself under attack again. The success of this tax in balancing the government books makes it highly unlikely they would be in a rush to avail adequate cash.

The unseen force

There is a little acknowledged force present in this that has fueled the cash out rate growth and that is inflation. The demand for cash has simply grown due to inflation. Year on year inflation currently stands at 288.5%. Simply put, on average what you needed $1 for a year ago, you now require $2.89 for. Cash demand has basically tripled and that is according to official inflation data. If we take Professor Steve Hankes inflation figure we are looking at 6 times as much. The demand for cash has drastically escalated.

Foul play

There have also been suggestions, though unsubstantiated that top officials at the Reserve Banks tower are infact involved in the cash crisis. As the theory goes they are behind the parallel market and continually supply the parallel market traders with cash to buy foreign currency. This cash finds itself in the hands of businesses who then gladly sell it on the Ecocash agents as I highlighted before. Others go further to suggest that there is a cartel that actively controls the supply of cash. At a time when the RBZ has conceded that it cannot control the parallel market for currency.

Ecocash vs Ecocash Agents

It is important to understand the relationship between Ecocash and their agents. The agents are independent operators and not employees of Ecocash, this complicates the degree to which Ecocash can control the agents activities. For example the agents freely go and seek cash by purchasing it and are not supplied by Ecocash directly. In days gone by the cash in and cash out transactions would roughly balance out over time. However current conditions place a high demand on cash. Ecocash to their credit have shut down agents in what looks a half hearted attempt at dealing with the problem.

Nothing new here

While theres a whole furore over the cash out issue we must remember that there is nothing new in this story. Rewind to 2008 and those old enough to remember will tell you of how bank employees would arrange large cash withdrawals for you, at a time when cash withdrawals were severely limited, and retain 10% of the withdrawn amount. The medium has changed, the currency has changed, the fundamentals have not.

As the story unfolds much will be said about ecocash agents and greed but care needs to be taken in how the issue is dealt with. A trip to your supermarket and being greeted with “Murikutenga necash here” (are you buying with cash) will remind you off the full extent of the problem. As long as the fundamental problems are not addressed the participants will find a way to regroup and resume operations.