eBusiness Weekly
Everyone still talks about the “cash crisis”, so that this is now another one of those stock phrases people take off the shelf without thinking and without even wondering whether the phrase is meaningful, let alone correct, in the contexts in which it is used.
In fact there is no “cash crisis”. Anyone in Zimbabwe can now use electronic payments for just about everything, and very cheaply too thanks to the mobile money and the lack of taxes on small payments. The odd cash payment can be limited to kombi fares, for which coins that are not too scarce are needed, and for convenience some coin payments to vendors.
So why are people queuing all night outside a bank to get $30?
They are not doing this because they want bond notes to buy a loaf of bread. They are doing it because they can sell the cash, that is they can make a profit by handing over cash to someone who then makes a transfer to their bank account or mobile wallet.
Sometimes, especially if you shop in the less formal sectors, this cash sale is indirect; there are those who use three-tier prices for transfer, bond note or US banknote payments. But in the end both direct cash sales and indirect pricing systems amount to the same thing, a series of steps that someone with money in their bank account uses to get money in transferable US dollars.
Thus the crisis is not a shortage of bank notes. The crisis is a shortage of foreign exchange. Just about the only unregulated way the ordinary person can make a foreign payment, even digitally, is by paying in US dollar notes or depositing these US dollar notes into an account that can then be tapped without much control to make a foreign payment, or at least modest foreign payments.
Bond notes are a useful intermediate stage in buying US dollar notes, the final goal. And it is because bond notes, like US dollar notes, are now a commodity that they do not circulate. Anyone doubting the commodity nature of bond notes should take a stroll around some Harare city blocks where dealers sit close together with piles of bond notes and US dollars ready to buy and sell.
In fact $200 million in bond notes should be more than adequate for almost all cash transactions in Zimbabwe. That would assume that people do not keep piles of money at home or anywhere else, bank their takings or only withdraw enough money from a bank for immediate needs.
We can see this with the despised coins. People do not keep trunks full of bond coins under their beds; they bank them or spend them quite quickly. So these do circulate, with the biggest batch of circulators probably being the kombi drivers and owners who between them must take in and either bank or spend over $1 million a day. Harare City Council reckons there are 10 000 registered kombis in the city and each of them must move between 100 and 200 passengers a day, so even if half the vehicles are not active the sums come out pretty impressively.
So even if everyone in Zimbabwe used electronic payments for just about everything, there would still be long bank queues and people seeking cash, although very little of that cash would ever go through a supermarket till.
That can easily be tested, incidentally. Several supermarkets have a “cash only” till, just one among the dozen, say, in operation. That is not to collect cash for the owners private use or offer lower prices; the prices are the same. The extra till is there to allow the tiny percentage of customers with cash to rush through the payment since there is hardly any queue, or usually none at all, and there is no delay while the person in front of you is ploughing through the mobile money payment system.
An ultimate test will come when anyone can make at least modest payments from their bank account to an external account and ATMs can disgorge cash at will but with the fee set at a level that is significantly higher than a mobile transfer fee. That fee would be justified as there are quite a few extra costs involved in importing bank notes, accounting for them, safeguarding them and loading ATMs.
If everyone was convinced that they did not need notes for foreign payments then they would not bother collecting them and paying extra. This is already what happens in Scandinavia where most shops make it clear they do not take cash and want customers to use cards. Not only do the shops have lower banking costs, and do not need to take time off to go and bank notes and coins, but they get their basic bookkeeping thrown in for free with the lower bank charges.
We have been through this sort of thing before. Up to the First World War in most countries both gold coins and bank notes circulated. Most people wanted notes rather than coins, simply because they were easier to carry and did not fall out of small holes in the pocket.
But when there were crises or something else that might limit the number of gold coins in circulation then some would pay a premium for gold.
There were also other oddities because small change was in silver and while Governments tried to fix the ratio of silver to gold at say 16:1, that is a kilogramme or gold would buy 16kg of silver, markets did not always see it this way. That is why in the end most countries limited the use of silver and made it clear that silver coins were only legal tender for quite small amounts.
But even so there were times when silver coins vanished from circulation as people hoarded them as metal and other times when everyone tried to pay every possible bill in silver as it was less valuable that the official equivalent in gold. The rapidly industrialising and developing USA frequently faced these sort of problems, especially with its weak paper currency. The US dollar only became a major international currency after World War I.
The upshot of examining just what is a “cash crisis” finds that it is a “forex crisis”, which we know we have, at the level of the little person.
