Zimbabwean banks are holding only two percent of their liquid assets as cash, with more than 36 percent in the form of real-time gross settlement systems (RTGS), a central bank official said today, highlighting the extent of the liquidity crunch in the country.
The southern African country is in the throes of a bank note shortage caused by a widening deficit as the local manufacturing industry weakens and low foreign direct investment inflows.
It introduced bond notes, a local parallel currency pegged at par with the US dollar last November under a $200 million Afreximbank loan facility but long bank queues have remained.
“Only 2 percent of the banks’ liquid assets in cash, that is notes and coins, and around 36 percent in RTGS. The deposits that are being made are not cash but people want to withdraw cash. That is why we are saying people must adopt plastic money,” deputy governor Kupukile Mlambo told a business conference at the Zimbabwe International Trade Fair in Bulawayo.
Ideally, the cash deposit ratio must be around 15 percent but in Zimbabwe it has fallen to 4.8 percent.
“When we dollarized in 2009, our cash deposit ratio was around 43 percent. This was mainly due to Zimbabweans in the diaspora who were putting their cash into the economy. Around 2014, that is when people started siphoning money out of the economy, that resulted in our cash deposit ratio falling to 4.8 percent. Our businesses are also not banking and that is a problem,” he said.
Mlambo said Zimbabwe has always had a shortage of foreign currency since the 1960s, but the latest problem has been worsened by the domestication of the same currency which was in short supply.
“As I speak right now Zambia, has more US dollars than us and they are using their own currency. Now imagine us who are using the same foreign currency both domestically and for foreign trade but we do not have the money.”
Mlambo said the country was not keen to adopt the Rand as the official currency because it is difficult as a stock value.
“Because of what is happening in South Africa, the rand has not been stable. It is a difficult currency as stock value. Imagine all the valuations we will have to deal with trying to convert assets which are already pegged in US dollar to rand. Ask any accountant he will tell you it is a daunting task when you are dealing with an unstable currency,” he said.
Mlambo, however, said Zimbabwe still needs to use more of the rand because it can be easily accessed.
The only solution that can solve the cash crisis is to increase exports hence the thrust to re-industrilise the economy and promote the use of other currencies in the basket, he said.- The Source