Currency u-turn fails to solve cash shortages

By Lance Guma
02 January 2007

The extension of a deadline for the exchange of old Z$200 000 notes has failed to solve the crippling cash shortage. The Reserve Bank made a spectacular u-turn just hours before a deadline to remove the old notes from circulation, choosing instead to re-introduce them back on the market. This has created scenes of chaos across the country as thousands of people make attempts to change their money any way they can. Many reports indicate that shops and businesses are reluctant to accept the old Z$200 000 notes, for fear they might be stuck with useless money at any time should the Reserve Bank withdraw them. Central Bank chief Gideon Gono used the excuse of the heavy rains for the inability to provide banks with enough new money.

But our correspondent Simon Muchemwa says the strategy seems to have been deliberately designed to scare people who were allegedly hoarding money, and make them put it back in circulation. Unfortunately he says insiders in the bank leaked the information to dealers who kept their Z$200 000 notes, knowing a u-turn would soon follow just before the deadline. Queues at the banks persist as people struggle to get money, despite Gono claiming Z$100 trillion was now in circulation.

Some shops are reported to have closed in an attempt to avoid the confusion over the old notes. The central bank had pledged to introduce new 250 000, 500 000 and 750 000 denominations but the hyperinflation means people need more and more money to finance their day-to-day transactions. Economists say the new money will still lose value within days and not make a difference to the circulation problems. The inflation rate is now officially estimated at 24 000 percent but independent experts suggest it could be higher than 100 000 percent, discouraging people from using the banking system.

South African based businessman Mutumwa Mawere says what Zimbabwe is witnessing is ‘the privatisation of the state’ with a few individuals monopolising state power for personal gain. He says Gono’s threat to report senior Zanu PF officials who hoard money to parliament, and not the police, shows the political nature of the problem. Mawere singled out Gono as the chief culprit in the illegal cash deals that are taking place and said: ‘Gono has challenged citizens to expose his criminal conduct fully knowing that he is in charge of all the law enforcement authorities who in any event would not dare act on him.’

Mawere says ordinary employees are the most affected by the cash shortages given that their money is losing value every day it is just stuck in the bank.