Zim needs $600m cash: RBZ

By Ndakaziva Majaka

Zimbabwe needs about $600 million in cash to achieve optimal liquidity ratios, a central bank official said.

Reserve Bank of Zimbabwe (RBZ) deputy governor Kupukile Mlambo last week said while the central bank was only going to print $200 million worth of bond notes, this was not enough to bring liquidity into the market presently battling a bank note shortage, adding Zimbabweans needed to urgently migrate to plastic-money transactions.

“It is important for people to know that bond notes will not dilute your savings and deposits because we need about $600 million in cash… the RBZ has absolutely no appetite to convert your United States dollars (US$) into bond notes,” Mlambo said, at the recently-ended Public Accountants and Auditors Boards’ annual accountants’ conference in the capital last week.

This comes as renowned economist Ashok Chakravarti recently said Zimbabwe —  which has been battling acute cash shortages for close to a year — needed at least $900 million in order for a normal cash to deposit ratio to be achieved.

However, Mlambo said the country — whose deposits are pegged at about $6 billion — was safe as long as “everyone did not wake up wanting to withdraw their money at the same time.”

“A lot of what we call Real Time Gross Settlement (RTGS) balances is not actual cash. When companies transfer money into your account as your salary no cash has moved, it is just a number that has been transferred.

“However, at the end of the month the employee wants cash, so the bank has to import this money… This is why we are encouraging the use of plastic money, to ensure that these balances are maintained and everyone in the system is happy,” said Mlambo.

According to Chakravarti, Zimbabwe needs a cash to deposit ratio of around 15 percent to prevent liquidity problems in the economy, but the present ratio is at just four percent.

“Currently, we have $6,2 billion in deposits with real cash in the system at $304 million… So we need about $900 million as cash in circulation and nostros, to escape illiquidity,” Chakravarti said recently.

At the moment, Zimbabwe has $232 million US$ in circulation, with a shortfall of almost $650-700 million and while the country introduced a parallel currency in the form of bond notes last year, Chakravarti says even with full issuance of the surrogate currency, the cash to deposit ratio remains low.

“Even a full bond note issue of $200 million will therefore not make a difference. If the ratio of bond notes to US$ is increased beyond current proportion, then it will no longer be a multi-currency situation and premiums will start emerging on US$ versus bond notes,” the economist said.

When Zimbabwe adopted the multi-currency system, total deposits in the banking system were $1,66 billion, but the cash to deposit ratio plummeted from 35 percent in 2009 to five percent in January 2017.

Hard cash circulation has also slumped 53 percent to $304 million currently from $642 million in 2013.

In spite of this, bank deposits have increased from $4,728 billion in 2013 to $6,2 billion in 2016. Daily News