SEMINAL PAPER ON CASH CRISIS IN ZIMBABWE

The Cash Crisis in Zimbabwe has resulted in untold suffering of the citizens as they struggle to access their hard earned earnings in the form of cash. The link provided (Click here) directs to a seminal paper I wrote expressing my views as an economist on the current cash crisis in Zimbabwe.

I encourage you to read it and don't forget to leave your comment...

Summary

The cash crisis as seen in this paper is largely as a consequence of the underlying ills within the socio-economic spheres. The amount of foreign exchange leaving the country far much outweighs the amount that is entering and this has led to cash shortages. The major cause lie with the low industrial and agricultural production and consequentially low exports levels by the country.  Other factors highlighted are related to the hoarding of cash by retailers, low levels of financial uptake by the informal sector, continued leakages of foreign exchange through the importation of restricted goods, mushrooming of cash dealers as well as high recurrent expenditure by the government.  The paper also acknowledged measures which are currently in place to alleviate the cash crisis and these include inter alia, promotion of the use of electronic money, the introduction of bond notes and the financial inclusion strategy by the RBZ. However it is the opinion of the researcher that much more has to be done in this regard and hence the policy recommendations given below.

Recommendations

This paper recommends that policies should be targeted at improving local industrial and agricultural production so as to improve exports as well as reduce imports. This will help to correct the balance of payments and therefore reduce foreign currency leakages. In this regard policies such as the S. I. 64 of 2016 and export incentive policies come in handy but much more still needs to be done to promote local production and competitiveness of the local products.

It also recommended that the government should work towards creating an investor friendly environment which attracts high levels of foreign direct investment. This entails addressing the policy inconsistences, hostile political environment, high levels of corruption, infrastructural development and implementing the ease of doing business reforms to mention but few. The simplification of the indigenisation policy as well as the engagement with the international community are commendable steps in the right direction.

In the short run, there is need for more intensive promotion mechanisms for the use of plastic money as a substitute for cash. This should also be coupled with the broadening and development of the e-banking infrastructure so as to accommodate the upsurge in the use of plastic money. In many countries such as the United States of America, the use of plastic money has become very common and this can still successful in Zimbabwe. The promotion strategy should also target the people in the remote areas of the country in order to be all inclusive.

In the long run however, there is need to set the fundamentals right for the use of the local currency (Zimbabwean Dollar). These fundamentals include sustainable foreign exchange reserves equivalent to one year import cover; sustainable government budget and average capacity utilization of above to 75 percent. The introduction of the local currency will re-equip the monetary authority with the requisite effective control over the monetary policy. This will in turn help solve all the problems highlighted above.