Zim has only $300mln in circulation

HARARE - Zimbabwe has $304 million hard cash in circulation including $73 million in bond notes as of January 2017, about a third of optimum demand, reflecting a worsening liquidity crisis, an economist said.

Ashok Chakravarti, who also advises the Office of the President and Cabinet on improving the ease of doing business, told a Confederation of Zimbabwe Industries (CZI) symposium on Thursday that hard cash in circulation inclusive of bond notes and US dollars was five percent of total bank deposits which has contributed to the country’s liquidity crisis.

“If you look at comparative studies from other economies cash to deposit ratio should be between 10 (percent) to 12 percent. If an economy has got less than 12 percent, it faces liquidity crisis…..We need $900 million in cash to have adequate liquidity,” said Chakravarti.

Hard cash circulation in the country has dropped by 53 percent from $642 million in 2013 to $304 million currently. However, bank deposits have increased from $4,728 billion in 2013 to $6,2 billion in 2016.

At the onset of the multicurrency system in February 2009, total deposits in the banking system were $1,66 billion. Cash to deposit ratio has decreased from 35 percent in 2009 to five percent in January 2017.

The amount of cash held in Nostro accounts declined by 61,6 percent from $424 million in 2009 to $163 million as at November 2016.

“When liquidity challenges first surfaced in 2014, the RBZ reduced cash holdings in Nostro accounts from 30 percent to 5 percent of total deposits to improve the availability of cash in the economy. This decision simply led to externalisation of dollar cash, exacerbating the liquidity crisis,” said Chakravati.

To resolve the liquidity crisis in the country, Chakravarti recommended that the government should reduce wage bill, stop reissuing of Treasury Bills and borrowing from the private sector, repeal the indigenisation policy and adopt the South African Rand.

The business community has voiced its distrust of government methods of dealing with the acute cash shortage of bank notes and urged an adoption of the Rand, a suggestion the State turned down.

Chakravati has previously suggested a three percent import levy across the board which he said could raise $2 billion (annually) to incentivise exporters in real currency instead of the bond note incentive.

Comments (6)

Forget about the rand.Yo ideas must be on bond note.Foreign currency is just that ,foreign.Reserve bank can only release more bond notes to help the market .More bondnotes secured by the $300m Afriexim and trust.Reserve bank has accumulated a substantial amount in hard currency ,thru gold sales and market mopping becoz the TBs are always fully subscribed.Lets rally behind our gorvernor and help develope our own strong currency.

viola gwena - 29 January 2017

Viola is mad, where can you import goods with bond notes. Very soon, not later they will no goods on the shelves in Zim Stores. You think you can have a strong currency without industry, without production day dreaming, adopting the rand is much and far much better option than bond notes. Shame this country is just on auto pilot while sekuru is sleeping.

Bonganilishe - 30 January 2017

@Bongani , adopting the rand will not make South Africa give it to us for free.Rather than waste time begging other countries currencies ,viola is saying deal with yours.The normal thing is companies apply to reserve bank to import commodities ,not themselves paying directly to foreign companies.

munya - 30 January 2017

in 1998 we were importing goods,shops were full,cars hooting and we had Zimdollar.What was happening then?Do south africans take rand to London for imports?Zambians?Think please.Economics is for the learned to comment on,not grade 2s.

peter - 30 January 2017

We had commercial farmers in 98!

Young Zimbo - 30 January 2017

its the economic principles that matter.Viola must explain how Mangudya is going to mop up hard currency from a broke market.There is no dollars now on the market.How do we trust a broke person to mop up currency for banking Viola?

robertson - 30 January 2017

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