NON-EXPORTING depositors have no right to demand foreign currency from local banks because they are not generating any, Barclays Bank of Zimbabwe (Barclays) chief executive officer, George Guvamatanga, has said.
Zimbabwe adopted a hard currency regime in 2009 to escape a hyperinflationary crisis. The United States dollar has dominated transactions, although currencies from South Africa, Botswana, England, China and a number of other countries are also legal tender.
But since last year, the country has battled acute foreign currency shortages largely caused by the huge trade deficits over the years and the creation of money through the real time gross settlement (RTGS) system by the central bank.
Money created through the RTGS platform has not been backed by foreign currency, triggering a shortage of greenbacks which resulted in depositors failing to withdraw their money from banks.
To counteract this problem, the Reserve Bank of Zimbabwe introduced bond notes in November, but these have done little to mitigate the cash crisis.
The Barclays boss joins other bank executives who have suggested that since most Zimbabwean depositors are not exporting to earn foreign exchange, they should not demand US dollar cash from banks.
“Let’s face something here; you cannot have something that you have not created. We have to understand that when you want the US dollars, you need to have exported.
“Farmers and small scale miners should get all their money in cash because they have exported. A civil servant cannot go to the bank and demand all their money in cash because he has exported nothing,” Guvamatanga said during a recent digital money conference.
Central bank governor, John Mangudya, has spoken against cash-thirsty depositors, urging them to “eat what they kill”.
He has also noted that civil servants were getting paid using RTGS but wanted US dollar notes when their incomes were not backed by real money.
“The country is in this situation because people who do not generate cash feel entitled to cash and refuse to embrace plastic money. But it makes little sense for someone not producing to want cash,” Mangudya said.
The gap between cash in circulation and virtual balances is anticipated to widen on the back of bond notes externalisation, according to local equities firm, IH Securities (IH).
While Mangudya affirmed in his mid-term Monetary Policy Statement that the amount of currency in circulation was enough to support the $1,6 billion held by banks from RTGS transfers, IH said this balance could not be maintained for much longer.
In the wake of an acute cash shortage, Zimbabwe – with cash holdings of only two percent of liquid assets held by local banks – is running on money created through the RGGS, which is not backed by actual cash.
As a result of this system, transfers are being made without the actual back of hard currency.
This has seen the central bank pushing for the market to embrace cash-lite transactions so that transactions are conducted virtually.
While this has raised concern in the market that the gap between actual cash and RTGS money is becoming unsustainable, Zimbabwean depositors continue queuing for cash withdrawals, with some sleeping outside banks to get cash.
Guvamatanga said as long as one did not have an export business, they did not deserve to receive cash from the bank.
“If I’m working here and I get my money credited to my account, I cannot go to the bank and demand all of it in cash. We have to understand that for us to have that cash, someone should have exported,” the Barclays boss said.
Just last year, Finance and Economic Development Minister Patrick Chinamasa blamed “cash-hungry” depositors for the country’s cash crisis.
“We are using US dollars to buy matohwe and expect not to run into trouble. It does not even make sense,” the Treasury chief said then.
When Zimbabwe adopted the multi-currency system in 2009, total deposits in the banking system were $1,66 billion, but the cash to deposit ratio plummeted from 35 percent in 2009 to five percent by January 2017.
Banks held $57 million in foreign notes and $7 million worth of bond notes at the end of June, according to central bank data. Physical cash holdings averaged $300 million per month between 2013 and 2014, RBZ figures show.
Hard cash circulation has also slumped 53 percent to $304 million, from $642 million in 2013. In spite of this, bank deposits have increased from $4,728 billion in 2013 to $6,2 billion in 2016. – FinGaz