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Cash shortages: Call to embrace plastic money

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FOR the past four months the country has been hard-hit by cash shortages.
It started towards Christmas last year and everyone believed it was because of the high demand for cash.
The following month it continued and again another explanation was proffered; high demands of cash because of bonus pay-outs.
In the next two months, the situation worsened as it saw all the country’s 14 commercial banks disabling the ZimSwitch transacting system, while Automated Teller Machines (ATM) regularly report ‘technical problems’ each time people want to use them.
The opening of the 2016 tobacco marketing season made the situation worse.
Long queues at banks have become the order of the day, with some reportedly limiting maximum withdrawals to US$200.
Due to the liquidity crisis, some shops are now unable to give customers cashbacks.
Cash shortages have become the talk of town and there are all sorts of theories.
Some ‘economic analysts’ in commuter omnibuses are saying Government wants to bring back the Zim-dollar.
Others claim this is happening because of the indigenisation deadline announced by the Minister of Indigenisation and Economic Empowerment, Patrick Zhuwao.
Last month, Zhuwao announced April 1 2016 as the deadline for indigenisation or else companies would face closure.
However, this has since been reversed.
But these ‘economic analysts’ believe this contributed to cash shortages as banks are now holding on to their cash for speculative reasons.
Here are some authoritative explanations of the cash shortage in the country.
Nostro accounts closed
Commerzbank in February asked local banks to close their nostro accounts with the Frankfurt based financial institutions.
Nostro means ‘our’, and is short-hand for talking about ‘our money on deposit at your bank’.
The nostro account is the record of the bank whose money is on deposit at another bank.
The account is often used to simplify settlements of trade and foreign exchange transactions.
For nostro accounts, the domestic bank, the bank that is holding the account, acts as caretaker for the account and is sometimes referred to as the ‘facilitator’ bank.
Zimbabwean banks have traditionally been holding US dollar-denominated nostro accounts with US banks and in other jurisdictions like Germany and South Africa.
These accounts facilitated the smooth flow of money in and out of the Zimbabwean financial system through facilitating outward payments (MT103s) or inward receipts (MT202s).
Nostro accounts are key and very necessary enablers for a country to pay for its imports and to receive payments for export proceeds due to it.
They are, in fact, at the centre of international trade payment mechanism.
However, in 2014, South African banks, mainly ABSA and FNB, instructed most Zimbabwean banks holding US dollar-denominated nostro accounts with them of their decision to close the accounts.
They cited US Anti-Money Laundering and Organisation of Foreign Assets Control (OFAC) guidelines in their decision to close the accounts.
Most of the affected banks switched to Germany banks like Commerzbank which were more lenient and not very thorough with their requirements and minimum Know Your Customer (KYC) guidelines.
But Commerzbank has now communicated to Zimbabwean banks (by telephone) informing them of the decision to close down all US dollar-denominated accounts held with them.
This has disrupted foreign transactions, as some banks have not yet secured nostro accounts.
Speculative reasons
Monetary authorities believe Zimbabweans are holding cash for speculative reasons, a reflection of the lack of confidence and trust in the banking sector.
Reserve Bank Governor Dr John Mangudya said the cash in the economy was not circulating the way it should be doing, adding that banks must play a key role in ensuring that cash was moved through the formal channels.
“The implication of this phenomenon is that banks should provide incentives for the banking public to bank their money, which is the essence of financial inclusion,” he said.
Trade imbalance
A local economist said the root cause of liquidity problems in the country was the trade imbalance which had seen Zimbabwe importing more than it exported, with imports estimated to be over US$20 billion since 2009.
“Our imports have been increasing and that means we are losing money,” Davison Vandira said.
“We need more companies that are exporting so that we get cash into the country.”
Way forward
Bankers’ Association of Zimbabwe president Sam Malaba encouraged the market to embrace plastic money and retail cash-back facilities.
“We have stuck to what the (RBZ) Governor said; it is time we, as a nation, start to use plastic money when making transactions in this time,” said Malaba.
“We are urging everyone to take part in lessening our collective problem (cash shortage).
“With the tobacco selling and marketing season in full swing, we expect the cash to start circulating and exchanging hands, hence, the cash shortage will be a temporary thing.
“However, our negative trade balance is also contributing to the current problem as we continue to import more than we are exporting, consequently that area needs to be addressed.”

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