The Reserve Bank of Zimbabwe (RBZ) will be issuing more bond notes and coins into the market to alleviate worsening cash shortages, amid high prevalence of cash premiums on electronic money, the Central Bank Governor, Dr John Mangudya said in the latest mid-term monetary policy statement.
This follows the deregulation of the multi-currency system in June, creating more demand for the local bond notes and coins.
Zimbabwe needs cash in circulation of about 10 to 15 percent of broad money supply which currently stands at ZWL$ 15 billion.
Currently, there are just above ZWL$ 500 million bond notes and coins issued into the market and they still fall far below the 10-15 percent threshold of broad money supply.
“Accordingly, without prejudice to our cash-lite society drive which has served the country very well, the bank will continue to inject additional notes and coins on a gradual basis, to support productive (sectors) and lessen the inconvenience caused by physical cash shortages to the transacting public,” Mangudya said.
The bank however, emphasized that the injection of bond notes and coins will be done in exchange with banks’ RTGS balances.
“The cash injections will not result in an increase in money supply as banks will use their existing RTGS balances to exchange for cash,” added Mangudya.
The cash shortages are affecting all facets of the economy including tourists, who are failing to access the local currency to meet their domestic transactions.
There are widespread fears that if the bank injects more notes and coins, it could spark further currency devaluation and exacerbate inflation already tilting towards hyper inflationary.
Zimbabwe has made commendable strides in setting up a cash-lite society in trying to ease demand on cash in the last two years but owing to cash hoarding which has created an artificial shortages, there are fears the injection of more notes and coins might not yield expected results.
Trading cash for electronic money is brisk business as cash is being sold at a 50 percent premium.
Last year, Equity Axis (Equity) – a local financial research firm noted that out of the ZWL$ 345 million bond notes issued by RBZ then, only $24 million was in circulation as at December 31 2017, with the rest in the parallel market.
Market watchers have castigated monetary authorities together with mobile money firms for failing to effectively fight the scourge of illicit money transfers by mobile money agents and other street traders setting high cash premiums.
Last month Ecocash, the country’s biggest mobile money platform by subscriber base said it had deregistered about a thousand of its agents who were charging higher than stipulated charges on cash withdrawals.