Zim needs $600m cash: RBZ

Source: Zim needs $600m cash: RBZ – DailyNews Live

Ndakaziva Majaka      24 April 2017

HARARE – Zimbabwe needs about $600 million in cash to achieve optimal
liquidity ratios, a central bank official said.

Reserve Bank of Zimbabwe (RBZ) deputy governor Kupukile Mlambo last week
said while the central bank was only going to print $200 million worth of
bond notes, this was not enough to bring liquidity into the market
presently battling a bank note shortage, adding Zimbabweans needed to
urgently migrate to plastic-money transactions.

“It is important for people to know that bond notes will not dilute your
savings and deposits because we need about $600 million in cash… the RBZ
has absolutely no appetite to convert your United States dollars (US$)
into bond notes,” Mlambo said, at the recently-ended Public Accountants
and Auditors Boards’ annual accountants’ conference in the capital last
week.

This comes as renowned economist Ashok Chakravarti recently said Zimbabwe
–  which has been battling acute cash shortages for close to a year –
needed at least $900 million in order for a normal cash to deposit ratio
to be achieved.

However, Mlambo said the country – whose deposits are pegged at about $6
billion – was safe as long as “everyone did not wake up wanting to
withdraw their money at the same time.”

“A lot of what we call Real Time Gross Settlement (RTGS) balances is not
actual cash. When companies transfer money into your account as your
salary no cash has moved, it is just a number that has been transferred.

“However, at the end of the month the employee wants cash, so the bank has
to import this money… This is why we are encouraging the use of plastic
money, to ensure that these balances are maintained and everyone in the
system is happy,” said Mlambo.

According to Chakravarti, Zimbabwe needs a cash to deposit ratio of around
15 percent to prevent liquidity problems in the economy, but the present
ratio is at just four percent.

“Currently, we have $6,2 billion in deposits with real cash in the system
at $304 million… So we need about $900 million as cash in circulation
and nostros, to escape illiquidity,” Chakravarti said recently.

At the moment, Zimbabwe has $232 million US$ in circulation, with a
shortfall of almost $650-700 million and while the country introduced a
parallel currency in the form of bond notes last year, Chakravarti says
even with full issuance of the surrogate currency, the cash to deposit
ratio remains low.

“Even a full bond note issue of $200 million will therefore not make a
difference. If the ratio of bond notes to US$ is increased beyond current
proportion, then it will no longer be a multi-currency situation and
premiums will start emerging on US$ versus bond notes,” the economist
said.

When Zimbabwe adopted the multi-currency system, total deposits in the
banking system were $1,66 billion, but the cash to deposit ratio plummeted
from 35 percent in 2009 to five percent in January 2017.

Hard cash circulation has also slumped 53 percent to $304 million
currently from $642 million in 2013.

In spite of this, bank deposits have increased from $4,728 billion in 2013
to $6,2 billion in 2016.