Wednesday, June 15, 2016

Editorial Comment: Cash Crisis Can Be Solved by Rapid Changes
June 13, 2016
People queue to withdraw cash outside CABS along Jason Moyo  Avenue in Harare. — (Picture by Tawanda Mudimu)

Three factors are making the present shortage of banknotes far more serious than expected: the hoarding and illicit disposal of cash by traders, the high cost of using plastic money, especially for common small purchases by most Zimbabweans, and the near absence of plastic in significant parts of the formal economy and the larger informal economy.

Finance Minister Patrick Chinamasa addressed these issues last week in a report to Zanu-PF’s National Consultative Assembly on implementation of Zim-Asset, a major plank of the party’s policy, but now needs to take action and even seek Parliament’s approval for legal changes. The Reserve Bank of Zimbabwe, using powers granted by Parliament in the Bank Use Promotion Act, has sent its financial intelligence unit into the field to find out why cash deposits into banks fell 40 percent last month.

For some large honest retailers and other traders, the investigation will last a couple of minutes; the drop in cash deposited will be neatly balanced by the increase in electronic transfers using point of sale machines and RTGS orders. Everyone has noticed the vastly increased use of cards in supermarkets, and the consequent near impossibility of getting cash-back. These traders have nothing to fear and just need to show the investigators their bank records to be cleared.

But as the Minister noted, there are ugly reports that some businesses that still take a lot of banknotes through their cashiers are selling these notes at a premium. Reports suggest that some are taking a 10 percent commission for turning an electronic transfer into cash. We hope these will be found, and prosecuted, and those who make the transfers and take the cash will also have to answer in court. The use they make of the cash is probably illegal, if there is no other way of bringing them to book.

The Minister also brought up the charges for POS and other electronic transfers. These can be appalling and have been a major brake on a switch to the plastic economy that the Finance Ministry and the RBZ have desired for so long.

When banknotes were plentiful most Zimbabweans could make a single ATM withdrawal each month for a couple of dollars and then use the $1 000 or less they had earned the previous month for all purchases without further charges. Their total bank charges for “account maintenance” and one or two ATM withdrawals came to less than $15 a month, a sum to complain about, but not continuously.

Now using plastic and having to use counter transactions to get a tiny amount of cash for essentials, some are spending around five percent of their take home pay on bank charges and transaction taxes. This is iniquitous.

Minister Chinamasa and the RBZ need to get transactions charges, bank fees and taxes combined, down to a maximum of one percent with, say, a minimum charge of 10c and a maximum of $1. Neither banks nor the Treasury would suffer from the change, making more from millions of tiny fees and taxes each month than charging high sums for a few thousand “swipes” or RTGS forms.

The final change needed is to get POS machines into the whole of the formal economy and accelerate change in the informal economy. Harare municipality, for example, only moved from the 19th century cash receipts to the 21st century POS swipe machines last week, and that only after a strict directive. Very few service stations have POS machines, yet many motorists spend as much on fuel each week as they do on meat.

Banks should be forced, out of the fortunes they have made in the last couple of months on extra transaction income, to supply all trading customers with suitable POS machines.

Finally, the informal sector needs to be moved into the electronic age. Some traders could use POS machines, but for many the simple wallet and transfer systems offered by all three phone networks seem ideal. But these need to be simplified; having to enter all transactions into handwritten journals seems daft. We need a simple method for tiny transactions, with receivers at least being able to move these sums into cheap basic bank accounts. This would also go a long way to solving Minister Chinamasa’s other priority: how to get all potential taxpayers to pay taxes. If all transactions were recorded, zimra could enforce the laws.

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