The best advice Mnangagwa was given about how to solve cash crisis and curbing inflation


Zimbabwe should increase the number of bond notes circulating in the country as a way of reducing inflation, an economist has said.

The Confederation of Zimbabwe Industries (CZI) chairperson for the Economics and Banking Standing Committee Jimmy Psillos yesterday said the use of mobile money and real time gross settlement (RTGS) system was fuelling inflation, which topped 3,4 percent in December 2017 from -0,65 in January last year.

“When fighting inflation, it is better to use physical cash which is less inflationary than RTGS. My suggestion is that the government should print more bond notes, but within an overall cap,” he said.

Price pressures started mounting since September last year, a period coinciding with rumours that the central bank was running low on foreign currency reserves.

This, in turn, resulted in widespread panic-buying in fear of impending product shortages. Prices of goods increased sharply as retailers were required to buy scarce foreign currency on the black market to restock.

Suppliers also started asking a premium for purchases facilitated via bond notes. The latter also stemmed from concerns that the central bank was printing more bond notes than it had backing for in the form of foreign exchange.

At the time, the International Monetary Fund’s mission chief for Zimbabwe Gene Leon said “excessive government spending, financed by the central bank creating money, has exacerbated macroeconomic imbalances and amplified the impact of United States dollars cash scarcity, with an adverse impact on inflation and potentially jeopardising the financial sector.”

Zimbabwe introduced $200 million bond notes in November 2016, in an attempt to boost the amount of cash in day-to-day circulation.

The notes, which are pegged to the dollar at a rate of 1:1, but on the street US$1 fetches up to 1,20, were later increased to $500 million last year as cash shortages deepen.

However, the injection of more notes into the economy has failed to halt the cash crisis as banks continue to limit daily withdrawals resulting in depositors queueing every day to get their money.

Psillos, who was addressing the CZI 2018 Economic Outlook Symposium in Harare, said the introduction of more bond notes will also help reduce long queues at banks.

“Let the market choose how much bond notes it wants to have. This will eliminate all these productivity sapping queues,” he said.

NKC Research analyst Sibongiseni Nkota said Zimbabwe’s monetary side of the economy is still plagued by issues relating to tight foreign exchange liquidity, periodic domestic cash shortages, a thriving parallel exchange market in addition to the bond notes trading weaker than the US dollar.

“Much like the rest of the economy, the monetary environment will benefit from an increase in forex inflows, either via increased foreign investment, more loans being granted to government, or inward migration by Zimbabweans returning home with savings,” he said.

“A healthier foreign currency buffer and an easing in tight foreign currency liquidity will curtail black market trade while also strengthening the value of bond notes, gradually improving confidence in the latter.

“Some of the recent policies announced by the new president suggest that the economic landscape will change to become friendlier to investment and business in general.
That said, it will take some time to address Zimbabwe’s considerable macroeconomic imbalances,” Nkota added.

— DailyNews

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