Businesses embrace plastic money

Source: Businesses embrace plastic money | The Herald May 31, 2016

Herald Reporters
More businesses have embraced plastic money as the country continues to experience banknote shortages, with economists expressing mixed feelings over the proposed introduction of bond notes.

This comes as most financial institutions yesterday had dry coffers with many people in long winding queues hoping to withdraw cash from banks.

The efforts, however, were futile as most walked away empty-handed.

The introduction of stringent cash management systems, including limiting maximum cash withdrawals to between $100 and $200 resulted in the people having to bear the brunt of long queues at banks.

Financial institutions such as FBC, POSB, and CABS had the longest queues.

The banks have switched off most of their ATMs. Small and medium enterprises businesses that do not have swipe machines were the most affected as their customers did not have cash to spend.

Finance and Economic Development Minister Patrick Chinamasa has blamed the banknotes shortage in part to businesses and individuals who illegally externalise US dollars.

Reserve Bank of Zimbabwe governor Dr John Mangudya and Minister Chinamasa have proposed to introduce bond notes on the same value as the US dollar to incentivise exporters. It is also hoped that these will improve market liquidity as they cannot be exported nor stored at home.

Economic analysts said the introduction of bond notes could not be a permanent solution to challenges facing the country.

Economist Mr Brains Muchemwa said the cash crunch was a combination of the depletion of Nostro balances and to some extent being triggered by panic withdrawals.

“The conception that the introduction of bond notes will alleviate the current liquidity challenges can only hold true if the RBZ abandons the issuance of bond notes as an export incentive and instead issues them to meet cash withdrawals,” he said.

Mr Gift Mugano, also an economist, called for the adoption of the South Africa rand by joining the South African Customs Union saying this would address the issue of competitiveness by increasing exports. “The bond notes are likely to be rejected by the public. Look at countries like Argentina and Panama. The amount of the bond notes is insignificant to trigger an improvement in liquidity as the bond notes will on average constitute three percent of the total cash in circulation,” he said.

Economist Mr Witness Chinyama said bond notes should be explained to the public as the “Zim-dollar” invokes memories of hyperinflation.

He said for the bond notes to circulate properly, the RBZ should “keep to their words” as industry has lost confidence from the 2008 experience.

Bankers Association of Zimbabwe (BAZ) president Dr Charity Jinya recently said the banks’ lobby group welcomes and supports the measures as they will not only address cash shortages, but stimulate and stabilise the economy.

“The Bankers Association of Zimbabwe therefore endorses these measures (by central bank) and would like to assure the banking public that they have been introduced by the Reserve Bank of Zimbabwe, not only to deal with the current cash shortages in the economy, but also to stabilise and stimulate the economy through the promotion of exports,” said the BAZ president.

Dr Mangudya highlighted recently in our sister paper, The Sunday Mail, that bond notes would start circulating around August of this year. The bond notes will be backed by a $200 million Africa Export-Import facility and printed in $2, $5, $10 and $20 denominations.

Zimbabwe already uses bond coins which were introduced last year backed by a similar facility.