Zim running out of US dollars

Source: Zim running out of US dollars – DailyNews Live

John Kachembere and Ndakaziva Majaka      25 January 2017

HARARE – Despite the shrill official propaganda to the contrary,
Zimbabwe’s economy is continuing on its steep decline – with the latest
manifestation of this implosion being the alarming disappearance of the
much sought-after United States dollars from the market in recent weeks,
with devastating consequences for the country.

This latest dose of bad news to hit long-suffering Zimbabweans comes as
economists have recently reaffirmed that average incomes in the country
are still hovering at their lowest levels in more than 60 years, with the
majority of families having to make do with less than $200 a month.

Reserve Bank of Zimbabwe governor, John Mangudya, confirmed to the Daily
News yesterday that Zimbabwe was witnessing a drastic shortage of American
dollars, blaming rampant externalisation of the coveted greenback for the
crisis.

Banking sources also said last night that the critical shortage of the US
dollar had escalated ever since the central bank introduced bond notes
into the market in November last year, as President Robert Mugabe’s
stone-broke government desperately sought to mitigate the country’s
crippling cash and liquidity crisis.

“It is a fact (that US dollars have disappeared). Nowadays we are
importing small denominations because externalisation is high …. smaller
notes make externalisation more difficult,” said Mangudya, adding that
“generally, in money laundering, people favour high value notes, and so
banks are importing smaller notes”.

However, Mangudya also said the country had, at the same time, seen an
increase in US$ deposits.

“We have seen a significant increase in US dollar deposits, and in terms
of the money in circulation, we have more US dollars in the system
compared to bond notes.

“So, people should not be alarmed with the disappearance of high-value
notes. It is just one of the measures being implemented against
externalisation,” he told the Daily News.

But banking sources said while the $100 and $50 notes had started
disappearing at the beginning of the country’s cash crisis, around May
last year, the shortage had escalated following the release of the bond
notes.

The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC),
Takura Mugaga, also told the Daily News yesterday that the disappearance
of high-value US dollar notes was being caused by externalisation,
pointing out that people were also using the greenback as a store of
value.

“You need to note that most people are holding US dollars in their homes
and not depositing them, as they seek a strong currency to hold on to,” he
said.

But former Finance minister, Tendai Biti, said the disappearance of the
high-value US dollar notes was “a direct result of a government-instituted
grand theft”.

“What the government is doing through bond notes is that they are
swallowing legitimate US dollar balances in the system and stealing the US
dollars.

“If you go to the bank and your balance is US$200, but you get 100 Bond
and $100, what has happened to the other $100?” he queried.

“We are experiencing what is known as Gresham’s Law, where bad money is
replacing good money in the system,” the People’s Democratic Party leader
added.

A senior economist with risk and analysis firm IHS Global Insight, Alisa
Strobel, added that “the increase of uncertainty over the impact of bond
notes to the Zimbabwean economy, and fears we could see a repetition of
2009’s hyperinflation, bodes ill for the economy across the board”.

Although Zimbabwe introduced a multi-currency system in 2009, including
using the South African rand and recently the Chinese Yuan, almost all
Zimbabweans prefer the greenback to the other currencies.

Prominent economist, Ashok Chakravarti, said recently that a whopping $358
million in cash had been siphoned out of the country in the past five
years alone.

He also told a Confederation of Zimbabwe Industries (CZI) gathering in
Harare late last year that greenback banking deposits had declined from
$627 million in 2010 to $269 million last year.

“We have about US$269 million in banks, which is about six percent of
total bank deposits. Cash in the system has depleted compared to deposits
… There has been genuine externalisation. You need to have a non
convertible currency to stop externalisation. If you need this country to
move you have to have a currency which cannot be externalised,” he said.

And as Zimbabwe’s economy continues to die, the World Bank last year
downgraded the country from its list of improved economies to the
unflattering tier of struggling countries, as Harare’s political and
economic turmoil continues to escalate.

In its publication titled Africa’s Pulse, the Bretton Woods institution
said the country had failed to register significant economic growth over
the past few years.

“Zimbabwe’s fiscal deficit has deteriorated as remedial actions have been
limited and this has resulted in the country registering a negative
correlation between the cyclical components of government consumption and
GDP,” it said.

Economists say poverty levels have reached “numbing levels”, amid
indications that the situation will worsen in 2017, as Mugabe’s Zanu PF
government continues to demonstrate its inability to fix the rot.