THE Reserve Bank of Zimbabwe (RBZ) says demand for cash is higher than what can be supplied, amid increasing liquidity constraints, which has been hampering foreign payments.
Source: Demand for cash continues to grow: RBZ – NewsDay Zimbabwe November 22, 2016
BY TATIRA ZWINOIRA
The liquidity constraints stem from low exports, as they account for 60% of cash flows in the country.
Delays in foreign payments in recent weeks have most notably been experienced in the fuel and cooking oil sectors, which are both listed under priority one of the RBZ foreign currency priority list.
Mangudya told NewsDay recently that the high demand for foreign currency was exceeding supply.
“The challenge we are facing as a country is one of demand being higher than supply of foreign currency,” he said.
“We expect the business community and consumers to guard against losing our hard-earned foreign exchange in order to stabilise the situation.”
Mangudya has pointed out that the demand for cash comes from people who do not export, and as such, any available cash was being gobbled up, leaving very little for external payments.
The high demand for cash stems from a massive drop in public confidence in the financial sector due largely to policies which are inconsistent with market changes.
As a result, the public has taken to sourcing cash from what is becoming a booming cash selling business being perpetrated by retailers.
One analyst described this as a “mutually beneficial position”, as buyers of cash know retailers deal in cash on a day-to-day basis, thus increasing cash availability, while the latter avoids foreign payments delays to suppliers by having an opportunity to buy more stocks through the charges.
One United States dollar is currently being sold for an average of $1,10.
Financial expert, Persistence Gwanyanya said such double-dipping was unsustainable especially in a market that uses one predominant currency.
“The country is using the US dollar for both local and foreign transactions, which is unsustainable for a country that does not print the US dollar. The only way a country can ‘print’ dollars in the current environment is to achieve a net export position, which the country does not have. As a result, there are bound to be cash shortages,” he said.
“The dollar is being used for local transactions, which should not be the case. This is why the RBZ wants to release the bond notes which will take care of local transactions. You cannot use the dollar for imports payment and exports.”
The central bank needs money to make critical foreign payments on behalf of the market in order to keep the economy’s critical sectors going.
As supportive mechanism to quell cash shortages, the central bank has been importing $15 million per week on top of what banks are importing.
Retailers and wholesalers, who have suppliers in South Africa, have taken to selling cash to the parallel market that has contacts in the neighbouring country.
Parallel cash dealers then instruct their contacts to deposit the equivalent into the South African bank accounts of these retailers and wholesalers in a move to further avoid delays in foreign payments.