Scramble for cash

Tag : Functional Fabric
Scramble for cash

By Darlington Musarurwa

CHRONIC cash shortages in the present hyperinflationary environmenthave spawned increased speculative activities in the economy thateconomists believe will impact negatively on the economy andthreaten the fabric of the national payment systems.






Notwithstanding efforts that have been made by the Reserve Bank ofZimbabwe (RBZ) to periodically review upwards the minimumwithdrawal limit, the constantly soaring prices of basiccommodities and transport has in turn created a huge appetite forcash.

A snap survey by The Sunday Mail Business reveals that cash queuescontinued to haunt almost all the major financial institutions.

Economists contend that in the short term, broadening the use ofplastic money through the ZimSwitch platform will considerablyassuage the huge appetite for cash from the market.

Genesis Investment Bank economist Mr Brains Muchemwa said in aninterview last week that a decisive and sustainable solution to thecash crunch in the long term will depend on Government policy, butthere was, however, scope for alternative monetary systems tosettle transactions.

"Presently the major reason why the cash crunch has remainedentrenched is the hyperinflationary environment that we are in, andI believe that the central bank has tried its best to make timeousinterventions but it needs to be appreciated that in an environmentlike this they will continue to lag behind developments in theeconomy.

"Ideally in such circumstances there is need for the RBZ tocontinuously pump more and more notes into the economy. However,quasi-fiscal losses that will be incurred in this way will come andhaunt the financial services sector.

"In any case, Government has more pressing business to attend to,"said Mr Muchemwa.

He added that in the short term there is need to promote the useplastic money in order to relieve pressure on cash.

Plastic money is generally a generic term used to describe alltypes of bank cards, credit cards, smart cards and debit cards. Thecommon type in Zimbabwe at the moment is the debit card, which isreferred to as the ATM (automated teller machine) card.

ATM cards are commonly used to withdraw funds and swipe at Point ofSales (POS) terminals when purchasing at retail shops.

However, customers are increasingly being frustrated using theZimSwitch system at the POS terminals because most often thesystems will not be working. Worryingly some retailers have beendeliberately removing the terminals and insisting to be paid incash for goods and services.

ZimSwitch is an inter-bank system that allows the people to use ATMand POS terminals of other banks besides their own. Sharing of ATMservices has, however, been temporarily suspended because of theindividual cash shortages that financial institutions are facing.Some retailers, wholesalers and other companies, who usuallyaccepted payment through these terminals and through bank cheques,are now insisting on cash payments only.

Due to the shortages of cash on the market, it has become a commonphenomenon for individuals and some organisations to use cash tobuy United States dollars, whose exchange rate has plummeted torecord lows on the parallel market.

The greenback is, however, then illicitly changed into individualor company accounts using the super-high rates that are quoted forthe Real Time Gross Settlement System (RTGS).

By the end of last week the greenback has been quoted at $220 onthe streets, but the exchange rate through the RTGS system wasbeing quoted at $5 000 per US dollar. Such speculative activitieshave bloated some individual accounts, further creating pressureson financial institutions as individuals scramble to withdraw hugecash volumes that will also be used buy the discounted greenback.

Naturally, to circumvent the inconvenience of resorting to thefinancial institutions to withdraw cash, some individuals have alsobeen abusing the POS terminals to buy bulk basic commodities thatwill in turn be sold at a very low price than their value in orderto raise large cash volumes that will in turn be used to buy thelowly priced United States dollar.

Some of the commodities that are sold at ridiculously low pricesand are now cynically called BACOSSI (an acronym for the BasicCommodities Supply Side Intervention) and include items such asairtime recharge cards, milk, eggs and meat among othercommodities.

Consequently retailers have felt the pressure to restock and somehave now decided to receive cash payments and deliberatelydisconnect the terminals used for plastic money.

However, such developments have often inadvertently affectedgenuine customers that do not have ready access to cash and has asa result compromised the national payment system.

As a result of the increased pressure for transactions to besettled using RTGS and bank cheques, a multi-tiered pricing systemhas now developed.

Prices for goods and services that are quoted for the transferrates and bank cheques are now punitively high than those quotedfor cash payments.

Financial institutions such as CABS, Kingdom and ZB Bank havewidespread POS terminals, while Standard Chartered has the highestnumber of Visa machines.

CFX has only one terminal at Farm & City Supermarket. IronicallyCABS, which is more plagued by huge demand for cash unlike otherfinancial institutions, has a well-functioning network of Point OfSale terminals. Some economists argue that had the use of plasticmoney been efficiently used this could have significantly relievedpressure on the building society.

The RBZ has for long been advocating the use of alternative paymentsystems.

Said RBZ during the first half monetary policy review: "We onceagain wish to call upon stakeholders to exercise restraint in theirdemand for cash and in how prices are set in the goods and servicesmarkets.

"As we work to consolidate speeded economic stabilisation, expectedto be bolstered by the on-going political dialogue between the keypolitical parties in the country represented in Parliament, thecentral bank is working tirelessly to ensure that currency issuescease to be of concern to the public."

Already demand for cash has risen significantly and the currentwithdrawal limit of $500 per day is now increasingly becomingirrelevant.

The withdrawal limit can only cater for a single day's commuterfare trip.

This is markedly different from South Africa, where a bank accountholder is allowed to withdraw a maximum of R3 000