The shortage of cash in Zimbabwe is no secret and has been raging on for ages. In fact, the existence and dominance of the parallel market feeds off that shortage amongst other factors. The issue of cash shortages has been and still is a subject of contentious debate concerning how best it can be addressed. Recently there was the Ecocash Agents saga which saw the central bank banning Ecocash Agent line cash-ins and cash-outs. A short while later the ban was lifted and a ZWL$100 daily limit was put in place. This, however, has not addressed the underlying problem of cash shortages. The selling of cash is still on-going because anyone with an Ecocash line (even if it is not an agent line) can do that.

Where Exactly Is The Problem?

You see, I have often remarked on how the government tends to sweat the small stuff. What I mean here is that it is pointless to address signs and symptoms when you are busy ignoring the root problem. Take the Ecocash saga, as an example; you cannot solely blame Ecocash because it is basically a mobile money platform. The selling of cash is symptomatic of an underlying problem – which in this case is inadequate cash supply. So if you are serious about addressing the issue you must ensure that enough cash is in circulation. This is the primary responsibility of the Reserve Bank of Zimbabwe (RBZ). Though this has side effects nevertheless it is an avenue to be considered. Anyways, it seems the central bank is working on pursuing that avenue according to their recent remarks.

The RBZ Is In The Process Of Printing New Notes

This came to light during a Budget and Finance Portfolio Committee session that was held recently. It was said that these new notes will be unveiled and released into the market in a few months to come. It was also recapped that bond notes had, in principle, been introduced as an export incentive scheme – I am sure most of you recall that. Sadly, the initial framework for how the bond notes would be released and the like was never objectively stuck to. The working arrangement was supposed to see bond notes being allotted to banks. Alas, what seems to be a lifetime later those bonds notes now circulate outside the official banking system. This is what has led to the interesting phenomenon of buying and selling cash as a commodity.

It was also clarified that the new notes are not a new currency – they are not replacing the bond notes. This has been a much-debated issue and I personally think it stems from the many inconsistent remarks that have been said before by the finance minister. Some of you might recall that he once said that a new currency would be introduced by March next year. Later in August, he said new notes will be introduced before 2019 concludes. So it has been quite unclear as to whether these will be just new notes or a new currency. However, we will know for sure when the time comes since history has a lot to tell us.

Some Issues Worth Discussing

During that Budget and Finance Portfolio Committee session there were some important issues that came up. One such issue is that of RBZ being complicit in fuelling the parallel market activities. This comes from the realization that at times you see fresh bond notes on the parallel market. Since banks are rocked with cash shortages where then do money changers get these bond notes – the central bank is definitely found wanting in that regard. At the end of the day, you realize that their reaction to the Ecocash saga could have just been a front to present a certain impression. The RBZ was asked to answer to questions of how such things occur where fresh sealed bond notes are found in the hands of money changers. They responded by saying that they only release cash to banks and that they are looking into how cash ends up on the streets and not in banks. Though I might not dispute the possibility that banks are also privy to and involved in parallel market activities I feel the central bank is the major player in all this.

On the issue of printing new notes there are things that must adhere to. We all know that money printing can fuel inflation so it’s important that money printing must be done in moderation. A watertight system must be put in place to ensure that only banks access cash from the central bank. In fact, the banks must pay for the cash from the central bank meaning that the RBZ must not release cash into circulation that banks have not paid for. If this is done diligently it will go a long way in weakening the parallel market. This is because cash will be easily available from banks thus restoring people’s confidence in the banking system. This will also help stabilize the exchange rates and in the process will curtail inflation.

So here is the bottom line, printing of new notes (if that is really what it is) will, in principle, address the current cash shortages. However, that will only happen if there are certain fundamentals that are upheld. I have highlighted some of those issues in the preceding paragraph. If they are not adhered to then we will see a continuation of the current situation.