Long queues worsened at Zimbabwe’s banks hours after the Reserve Bank of Zimbabwe (RBZ) launched an aggressive campaign to educate the market on a new currency set to be introduced later this month.
Known as the bond note, the currency will mainly be used to fund a five percent export incentive, and ease a liquidity crunch that has crippled businesses across the country.
Winding queues of depositors, comprising pensioners, the working class and rural-based civil servants, have lengthened at banks as depositors camp at banking halls to withdraw their money.
In most cases, depositors were being turned away by banks as the stock of United States dollars in their vaults continue to decline, while others offered depositors the South African rand – one of the nine currencies in a basket of currencies adopted by the country at dollarisation in 2009.
Many service providers have been shunning the rand ever since it lost significant value against the US dollar last year.
Some of the depositors said they had withdrawn the maximum daily cash limit of US$100 or US$50, but could not travel long distances back to their rural areas as it was pointless to make the trip back home with a few dollars in their pockets.
Others feared if they left their savings, they would be turned into bond notes, whose value people fear may soon be eroded by inflation once the black market starts trading in the new notes.
“I work in the rural areas. Today I only managed to get US$100. I want to withdraw all my cash so that I am safe,” said one depositor.
The development came as some banks reduced the daily withdrawal limit to between US$50 and US$100.
Analysts at the London based IHS said there had been a surge in panic buying ahead of the introduction of bond notes, with people fearing that their savings would be decimated again, after they lost funds to hyperinflation in 2008.
“The country’s liquidity crisis has worsened to the point that most banks reduced withdrawal limits during the summer months from US$500 to US$50 and US$100, per day.
“The introduction of bond notes in Zimbabwe was meant to ease liquidity shortages. But, the announcement has so far received significant critique from opposition leaders. It has also led to a current wave of panic among the population, who started withdrawing from banks. Previously the use of the Reserve Bank of Zimbabwe as a quasi fiscal expenditure vehicle by the ruling Zimbabwe African National Union–Patriotic Front government, coupled with price controls, led the Zimbabwean dollar to collapse as official inflation soared to 231 000 000 percent in July 2008,” IHS said.
There are concerns that the bond notes could be eroded by inflation and could be a similar version of the failed Zimbabwean bearer cheques, which were rendered worthless by hyperinflation during the period 2007 to 2008.
And the heightened uncertainty, declining business confidence and a severe balance of payments crisis has affected businesses.
“International reserves in Zimbabwe have reached their deepest low, and confidence is declining. Foreign investors remain wary in the wake of controversial policies. Domestic demand has collapsed amid a struggling manufacturing industry and agricultural sector,” said IHS.
This week, the RBZ admitted that the gap between demand and supply of money was increasing in Zimbabwe.
It said this had caused bad practices that include illicit cash dealings and “rent seeking behaviour that are exacerbating the inefficient use of scarce foreign exchange resources within the national economy”.
“Some cash-generating businesses, especially retailers and wholesalers, have not been banking all their cash receipts, as required under the Bank Use Promotion Act [Chapter 24:24]. Instead, they offer the cash to companies and individuals, who would make RTGS or inter-account transfers of the equivalent amount, plus an agreed premium, into the cash vendor’s account,” said RBZ governor John Mangudya.
Legal and parliamentary watchdog, Veritas this week expressed reservations over the legality of introducing the currency, especially the use of the Presidential Powers (Temporary Measures) Act, which is not in the new Constitution.
“Regular readers will not need reminding that the Veritas position is, and has been since 2013, that the Presidential Powers (Temporary Measures) Act is unconstitutional in its entirety. But the government has continued to use it to gazette regulations covering a fairly wide range of controversial issues. If, as must be the case, the government intends bond notes to be a feature of life in Zimbabwe for longer than 180 days, it will have to go to Parliament with an appropriately worded Bill.
“Although the introduction of bond notes has been seriously talked about by the governor of the Reserve Bank and the Minister of Finance and Economic Development for several months, Statutory Instrument (SI) 133 bears signs of hasty preparation. For instance there are two section 2s. The SI itself contains a fatal inconsitency,” said Veritas. Financial Gazette