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ZIMBABWE: Of cash and dealers

23 Nov 2007 18:35:38 GMT
Source: IRIN

Background

• Zimbabwe crisis

• Zimbabwe hunger

HARARE, 23 November 2007 (IRIN) - Just when life could not become any harder for Zimbabweans, who are already having to cope with food and fuel shortages and rocketing prices, local banks have run out of notes.

Long queues of people waiting to draw cash have been a common sight outside banks for the past two weeks. "Yesterday I came here at 4 a.m. but by 3 p.m., when the branch closed, I had not managed to get anything," said Janet Sibanda, who lives in the capital, Harare.

On the day she spoke to IRIN she had managed to draw some cash, which she said would help her buy food. But cash is often not enough. Since the currency crunch started about two weeks ago there had been times when her family had gone to bed hungry because she did not draw money to buy food, and was recently forced to borrow cash from a neighbour after a hospital demanded money to treat her niece, who had met with an accident.

Others have to depend on a new breed of Zimbabwean dealers, who sell cash for a commission. They include bank tellers who moonlight as currency sellers after work, illegal foreign currency dealers, shop managers and even sports administrators, who receive cash after matches.

"Sometimes these people ... charge you as much as 40 percent of what you need, meaning that if you ask for Z$200,000 million (about US$143), you can only receive Z$120million (about $86)," said John Kangai, a self-employed carpenter.

"People are taking advantage of others because of the prevailing economic crisis, but that is not fair. I am struggling to make ends meet and the greedy are seeing an opportunity in the crisis to make quick and lazy money."

A parallel market cash dealer, who identified himself as Jeff, defended the practice, saying, "You need to be well-connected for your life to run smoothly." He claimed he sourced currency from tellers working at various financial institutions, and usually used local currency to buy foreign currency, which he also traded for a higher price on the parallel market.

Blame seasonal demand

Gideon Gono, governor of the Reserve Bank of Zimbabwe (RBZ), has acknowledged the cash crisis but said it was a sign of the demand for money as the Christmas season approached.

"This is not to say we cannot do anything," he told businesspeople and journalists at a briefing on 20 November. "We have pumped a lot of money into the market through various interventions, which is not supported by production ... and we are waiting to see what happens."

He urged companies handling large amounts of cash to surrender it to banks. The RBZ said Z$58 trillion (about US$41 million at the parallel market rate of US1 dollar to Z$1.4 million) was in circulation.

While individuals cannot draw more than Z$5 million (about US$4), companies have to contend with a maximum withdrawal of Z$20 million (about US$14), which used to be the limit for persons making ordinary withdrawals.

History repeating itself

Despite his insistence on 20 November that the central bank would not interfere, the following day Gono announced that Zimbabwe would introduce new bank notes to replace the bearer cheques (essentially, money printed on ordinary paper) introduced as a temporary measure in 2003. He did not say when the new currency would be introduced, but stressed that the "time has now come that swift measures be taken".

Zimbabwe's currency was devalued in late July 2006 when the Reserve Bank carried out a sting operation, introducing new notes with three zeros knocked off that took thousands of bulk cash holders by surprise and wiped out the savings of many ordinary people. The new notes were an attempt to halt the economic meltdown and relieve Zimbabweans from carrying wads of cash.

The exercise, codenamed Operation Sunrise 1, forced people to surrender their old notes to the Reserve Bank in an unrealistically short space of time.

Cross-border traders have smuggled several billion Zimbabwean notes into neighbouring countries, particularly Mozambique, Zambia and Botswana, where the currency is in high demand by Zimbabwean shoppers, who swap it for foreign currency when they return home.

The prevailing cash problems are similar to those of 2003, when banks almost ran out of cash, forcing the government to introduce short-lived traveller's cheques that could only be used locally. Gono took over as RBZ governor in December 2003 and replaced the traveller's cheques with the bearer notes.

Hyperinflation the cause

Eric Bloch, an economist and consultant to the RBZ, said the cash crisis was mainly due to hyperinflation. "Inflation is so intense that people need up to six times the amount of money that they required a month ago to buy the same commodity. On the other hand, the RBZ has stopped printing more money because, I understand, their printing machine has broken down," Bloch told IRIN.

Zimbabwe's inflation rate is officially pegged at almost 8,000 percent - the new rate has yet to be announced - but various independent economists have put inflation at nearer to 15,000 percent. The prices of basic commodities increase almost every day.

Besides having the highest in the world, Bloch said, "there is no doubt that a huge amount of the cash is circulating outside the financial system". Foreign currency rates in the parallel market have been rising sharply, he pointed out, meaning there was a higher demand for large volumes of cash.

The cash crunch could have a humanitarian impact. "People can no longer buy essential goods, levels of malnutrition would naturally go up, hospitals expenses cannot be met and the majority [of Zimbabweans] are facing physical, emotional and psychological hardships," he said.

The currency shortages were also negatively affecting business, said Bloch, as volumes of trade and production had slumped as the purchasing power had dropped.

A lack of foreign currency, which has persisted for seven years, has affected the country's ability to import adequate power and fuel or maintain infrastructure, which has also resulted in acute water shortages and outbreaks of waterborne diseases.

The seven-year economic meltdown has seen thousands of skilled people, including doctors, engineers, nurses and teachers, flee the country in search of better opportunities in other countries.

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Last updated:Fri Nov 23 18:39:03 2007