By Shame Makoshori
A staggering US$358 million in cash has been spirited out of the banking system by depositors in the past five years, a leading economist said recently, quoting data from the Reserve Bank of Zimbabwe (RBZ).
Ashok Chakravarti, an academic and advisor to Zimbabwe’s Cabinet, said banks held about US$627 million in cash in 2010, which represented 38 percent of total sector deposits.
He told a Confederation of Zimbabwe Industries (CZI) public lecture in Harare that deposits had declined to US$269 million this year, far below the 10 percent threshold of liquid cash required to sustain an economy.
The US$269 million represents about six percent of US$6 billion of total banking sector deposits.
Chakravarti, a former University of Zimbabwe lecturer and United Nations senior advisor, cast a grim picture on future prospects, as currency externalisation mounts.
Zimbabwe is currently experiencing acute cash shortages that have resulted in depositors queuing for cash, with many sleeping in bank queues at night as they seek to withdraw money from their accounts.
Many are fearing that they are likely to incur huge losses once bond notes are in circulation.
Foreign investors who had invested in Zimbabwe when the country switched to a multi-currency system are also reportedly withdrawing their savings from banks, worsening the cash shortages that are currently affecting the market.
Chakravarti’s analysis revealed that in 2011, 18 percent of total banking sector deposits, or US$618 million, were in cash.
Cash declined further in 2012 to US$596 million, or 17 percent of total deposits.
“We have about US$269 million in banks, which is about six percent of total bank deposits,” said Chakravarti.
“Cash in the system has depleted compared to deposits. There is a serious shortage of currency in the system. There has been genuine externalisation. You need to have a non convertible currency to stop externalisation. If you need this country to move you have to have a currency which cannot be externalised,” he said, suggesting that the South African rand would work.
The stampede to wipe out cash from the banking sector increased this year, after the central bank announced plans to introduce bond notes.
Bond notes are meant to fund a five percent export incentive, but have lately appeared to likely become widely used to inject liquidity into the economy.
When Zimbabwe ditched its vulnerable currency to escape relentless inflationary pressures, it lost the ability to control its monetary policy and create its own liquidity through money printing.
So, the best way to create liquidity under a hard currency environment is primarily through exports, which help create the stock of money in the economy.
But since 2009, imports have grown faster than exports, resulting in a widening trade deficit. RBZ governor, John Mangudya, has indicated that more cash has been lost through externalisation of export sales proceeds by companies through individual bank accounts.
Banks have coasted from one crisis to another, with cash shortages precipitated by massive withdrawals and reduced savings exacerbating their woes.
The long banking queues have brought back memories of the crisis era when depositors queued for long hours in banks to get their money, which suffered from a daily erosion of value due to hyperinflation.
“South African funds were locked here. The Angolan kwanza was not health and they were depositing funds here,” he said.
He spoke as economic indicators suggested that the country’s fragile economic situation is lurching towards fresh depths amid indications that small United States dollar denominations are disappearing from circulation.
The development has triggered speculation of a conspiracy to mop up the small denomination US dollar notes.
Chakravarti said with bond notes which came into circulation this week, everyone was likely to become a currency trader.
“All 13 million people will become currency traders. There will be multiple exchange rates,” he said.
Despite widespread resistance against bond notes, government proceeded with the introduction of the domestic currency.
The central bank released bond notes in $2 and $5 denominations this week.
Mangudya has tried to allay public fears that the bond notes would mark the return of the Zimbabwe dollar.
He indicated two months ago that the central bank has “taken note of the public’s concerns, fear, anxiety and scepticism of bond notes which all boils down to the general lack of trust and confidence within the economy”.
“The bank is addressing the concerns by planning to introduce smaller denominations of bond notes of $2 and $5. In addition, the bank has proposed for the setting up of an independent board to have an oversight role on the issuance of bond notes in the economy,” he said
Mangudya said it was “critical to emphasise that the introduction of bond notes does not mark the return of the Zimbabwe dollar through the back door”.
“The macroeconomic fundamentals or conditions for the return of the local currency are not yet right to do so,” he said. Financial Gazette