The 2nd quarter of 2016 goes down in the annals of Zimbabweâ€™s economic history as a period that saw the shaking of the banking sector to an extent reminiscent of 2018.Â Banks started running out of cash and depositorsâ€™ withdrawal limits were introduced. The situation on the ground is as follows:
- The maximum withdrawal limit in any bank per day is $500 per day
- The Minimum is $20 per day
- The average withdrawal limit is $100 per day
- Depositors are making daily withdrawals and were charged $5 per transaction before the RBZ reviewed financial charges. Now it is $2.50.
- RTGSÂ attracted a charge of $10 per transaction before the RBZ reduced it depending on theÂ value of the transaction.
- RTGS to foreign accounts have been restricted
- Internal RTGS are limited.
- Some banks often run out of cash
- Bank queuesÂ are the order of the day
- Premiums of between 10-25% are now charged for cash at the parallel market which is rearing its ugly head again.
- There is panic on the market with isolated shortages of fuel and some basic commodities such as sugar and cooking oil. In fact unusual fuel queues are forming at some service stations.
- People and companies are defaulting on payment obligations and suppliers no longer give credit terms.Â This will further damage banksâ€™ loan books.
Cash Shortages a Symptom of a Fiscal Policy Crisis
The cash crisis in fact started in December 2015 when we could see tale tale signs. Back then queues were forming outside some banks while other banks placed moderate limits. We all thought this was a once-off thing. Little did we realize that what we thought was a once-off thing was in fact the tip of the iceberg.Â It is therefore important to examine the real causes of the mutation of the liquidity crisis to a cash crisis.Â But before doing that, let me hasten to define the difference between the two.
Liquidity crisis is governed by prevailing lending terms and conditions which are normally punitive.Â For the private sector, firms could not borrow cheaply because of the country risk factor. Instead of accessing cheap off shoreÂ funds at 4% interest rate, they are borrowing short-term for rates as high as 20% per annum.Â Whereas with a cash crisis, the quantity of broad money supply (M3) is short in circulation. In the case of short shortages, there are more leakages than injections into the banking system.Â It is thought that because of leakages, the amount of deposits in Zimbabweâ€™s banking sector could have dropped from $5billion dollars as at December 2015 to $2 billion dollars at present.
Structural problems leading to the Cash Crisis/Liquidity Crisis
In my view, there are ten (10) possible reasons that can explain the cash shortages. First and foremost, the current cash crisis is a Confidence Crisis triggered by the following:
(1) policy ambiguity and inconsistency
(2) debt service
(3) government borrowing to finance domestic debt (budget deficit)
(4) Illicit financial outflows, porous border posts and corruption
(5) Trade deficit and the weakening Rand/regional currencies
(6) Depletion of Nostro accounts
(7) Sluggish Growth
(8) Low National Savings
(9) Non-Usage of Plastic Money and
(10) Liberalization of the Capital Account.
I shall deal with each of the above in more detail.Featured