Cash challenges and its effects on economy

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Taurai Togarepi
Reserve Bank governor Dr John Mangudya in his Monetary Policy presentation highlighted that “the growth in the use of plastic money, away from cash transactions, was phenomenal in 2017 to the extent that more than 96 percent of the $97,5 billion from the transactions processed in the entire country in 2017 were through electronic and mobile banking systems”.

This is a positive development as it helps to improve financial inclusion. Furthermore, it maybe a sign that the public has accepted the notion of a cashless society.

However, notwithstanding these impressive numbers and developments, they have come at the expense of the working class especially low-income earners.

In the past few months, notwithstanding the RBZ setting withdrawal limits at $1000 per depositor per bank, most depositors are failing to access their money from banking institutions as and when they need it.

When they eventually do access their money, they get as little as $20 per day and sometimes in 10, 25, and 50 -cent coins.

If the Government through the central bank is serious about engendering confidence in the banking sector and expect people to deposit cash, there is need for serious change in the way banks are treating depositors.

Some might argue that depositors may access their money through electronic means and mobile platforms. This is true, and positive in a normal environment.

In Zimbabwe, it seems as banking money is a crime, why do I say so, as alluded to above its difficult to get money as and when you need it and secondly, if one chooses to use other forms of payment to buy goods, most business charge a premium which is significantly higher sometimes up to 50 percent more. Thirdly, a depositor has to visit a bank several times just to withdraw $100.

The relevant authorities especially, those in policy formulation should prescribe measures to address the issue of cash shortages, as it is on the centre of restoring confidence in the banking sector among other factors.

A closer look at the financial statements of banks for the year ended 2017 show that non-interest income, as a share of total income was significant closer to 50 percent.

This is normally composed of fees, charges etc., which is explained by the number of times depositors have to visit the bank just to withdraw $100 dollars. Banks have slowed down in lending which is supposed to be their core function to facilitate financial intermediation.

The cash challenges has resulted in the thriving of the informal sector especially those that do sale their wares in the open. It is cheaper to buy goods on the streets as opposed to buying in established shops who have other overheads to content with.

For example, lux bathing soap costs around $1,65 (using plastic money) in established shops but one can easily buy it for $0,8 to $1 (cash price) on the streets. The consequences are huge, informal sector players do not pay taxes to government and their contribution to employment is in insignificant.

The disappearance of both the bond note and hard currency from the formal system has resulted in the emergency of the black market, which is contributing to the increase in prices as businesses factor in the premium they pay to source foreign currency. These are just a few examples of the challenges that have emerged related to the cash problems.

The above anomalies requires concerted effort from all stakeholders to solve the cash crisis. Unfortunately the solution maybe medium to long-term in nature.

Nonetheless, the monetary authorities should be seen working towards this objective. The Governor announced the extension of incentives to tobacco producers. In my view, this is uncalled for; the Reserve Bank should concentrate on creating a conducive environment for lenders (banks) to thrive.

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