Zimbabwe is experiencing a serious cash shortage that was exacerbated by the introduction of a new currency, the Zimbabwe Gold (ZiG).
The shortage of cash is negatively affecting aggregate demand as the informal sector, which employs the majority of Zimbabweans, relies on cash.
The Reserve Bank of Zimbabwe (RBZ) started circulating ZiG notes and coins on 30 April, about three weeks after the ZiG replaced the Zimbabwe dollar, which had lost three-quarters of its value this year.
The cash crunch has hit various sectors including transport, supermarkets, and the informal market, thereby disrupting business.
Speaking to The Standard, economist Gift Mugano, blamed the Central Bank’s “incompetence” for the cash shortage. He said:
We do not have enough ZiG from the central bank. The size of the money supply is about ZiG90 million and the size of our economy is about ZiG20 billion.
So, the question is how does the government liquidate and expect to provide enough cash in the market when you have that small share of ZiG?
The central bank has not printed enough ZiG.
Last time I checked, they had printed small denominations and as a result, they have starved the market.
That’s a failure, so the bank must print enough ZiG currency and enough denominations for the market.
At this stage we should not be struggling to access ZiG just for change, it’s serious incompetence on behalf of the central bank.
Mugano warned that the scarcity of the ZiG could lead to increased dollarisation. He said:
Even the governor (John Mushayavanhu) is very clear in his monetary policy that he is pushing for banks to put certain liquidity into non-negotiable instruments so that they dry the market.
What he does not realize is that he is finalizing dollarization, because if ZiG is not available, what is available is the US dollar.
So we are going to use foreign currency. He effectively brought small denominations and delayed the disbursement of large denominations.
Another economist Prosper Chitambara, told The Standard that the shortage of cash could be a result of a deliberate approach by the RBZ to avoid introducing too much liquidity into the economy which could result in inflation. Said Chitambara:
It could be a supply issue; the central bank did not print enough money.
Maybe they are trying to monitor the situation because you do not want to introduce too much liquidity in the economy; it can actually have a destabilizing impact on the economy.
Of course, there is a strong demand for the ZiG, especially to facilitate change.
So obviously, we need to create that fine balance in terms of ensuring that there is enough supply of ZiG.
Bankers Association of Zimbabwe chief executive officer Fanwell Mutogo said:
Banks, typically order cash from the central bank based on the demand for cash they anticipate from their customers.
We are not sure which customers are affected.
Moreover, customers are encouraged to use digital means of transacting.
This is part of a broader push towards digitization, which can help reduce the reliance on physical cash, improve efficiency, and potentially alleviate some of the issues related to cash availability.
The ZiG is Zimbabwe’s sixth attempt to deliver a functioning local currency since 2008 when hyperinflation destroyed the Zimbabwe dollar (ZWD).
