Banks should constantly update the central bank on the amount of money they need to meet demand from depositors, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya has said.
Ordinary Zimbabweans are struggling to access cash from banks despite the introduction of new notes and coins in November last year.
Cash is, however, readily available on the parallel market where it is sold at a premium.
Dr Mangudya told The Sunday Mail that continuous engagement between RBZ and banks would help address cash shortages.
“In an inflationary environment, it is difficult to get enough cash for everyone, but we are working towards that. We are continuously increasing the cash supply. We expect banks to give us their level of demand then we give them cash. We want to engage them more and continuously address the cash shortages,” Dr Mangudya said. The apex bank would continue to drip-feed cash into the market “so that people can get the money when they want it”, he said.
Monetary authorities also believe that the inflationary environment was making salaries increase at a faster rate than they are importing cash.
Dr Mangudya said in addition to rising demand for cash from individual depositors, the number of non-governmental organisations (NGOs) seeking cash for handouts to vulnerable communities had also increased.
“The other demand has been coming from NGOs, in particular the World Food Programme.
‘‘They are giving out cash through the Food Assistance Programme.
“So the demand for cash is very high. They sell US dollars to us and we give them the local currency.”
Asked if Zimbabwe will ever return to a situation where there will be more money in the banks than in the streets, Dr Mangudya said: “My answer is yes, that is our desired trajectory and that is where we are going. But at the same time, we still believe in a cashless society and we want to see a reduction in the cost of doing digital transactions.
“There are too many variables which are there in the economy.”
Central bank statistics indicate that the stock of cash circulating in the economy as at December 31 2019 stood at $1,1 billion out of the $34,5 billion held in banks as deposits.
The Monetary Policy Committee (MPC) — a key advisory body — has since advised the RBZ to increase the amount of cash in circulation.
“Following the MPC decision in October 2019 to increase the quantity of bank notes and coins in circulation to try and reduce the inconvenience being faced by the public in accessing their cash at banks, the bank has imported additional banknotes and coins to ameliorate this challenge
“The bank also advised of gradually injecting additional notes and coins into the economy to lessen the inconvenience caused by the shortages of physical cash to the transacting public. In addition, the bank introduced credit enhancing measures to incentivise and encourage banks to lend long term,” said Dr Mangudya in last week’s Monetary Policy Statement (MPS).
About 50 percent of the country’s bank deposits are held by about 200 individuals and companies.
Of the $34,5 billion bank deposits, $22 billion (64 percent) is in local currency and $12,5 billion (US$785 million) or 36 percent is in foreign currency.
“It is this liquidity or stock of money that is the key focus area that the bank is mandated to manage to ensure that it does not cause inflation and or bring volatility to the exchange rate,” said the governor.