‘Cash barons’ are only a symptom of deeper Zim economic malaise
Posted by CM on December 29, 2007
Things continue to spiral out of the control of the authorities in Zimbabwe in regards to the economy. They try all sorts of quick fixes for the multiple and increasing number of holes, but the bleeding seems to only get worse, whether in regards to inflation or general shortages of all kinds of goods.
The latest and most severe currency shortage to date has spawned all sorts of bizarre happenings. I say “latest” because I was recently reminded that Gideon Gono was brought in as central banker and general economic trouble shooter a few years ago in the midst of the first cash crisis, though not as severe as the current one. Lauded as a miracle worker by the state propaganda services then, Gono’s one-time idolisers are increasingly turning on him as it become clear to all that he cannot tame the economy’s multiple problems.
Where have all the Zim dollars gone to? Why must people queue endlessly to withdraw their own money from their bank accounts?
As in so many other areas of life in Zimbabwe, it is hard to get straight answers to these kinds of basic questions. But it seems a part of it is just that the local currency has so deteriorated in value against hard currencies (today one website says one (1) British pound is equivalent to seven million (7, 000,000) Zimbabwe dollars) that people who need foreign currency for one thing or another just need huge amounts of the Zim dollar to do the exchange. Currency speculation is no doubt also a big part of the reason for the “disappearance” from circulation of huge quantities of cash.
I don’t know if the fact that the amount of currency printed and in circulation is just failing to keep up with inflation and the Zim dollar’s continuing depreciation is also a significant factor. But whatever the reasons for it, it is certainly strange for the citizens of a country to fail to get their hands on their own currency!
We now have the bizarre situation wherein it is a reason for suspicion for a person to have large amounts of cash, and yet the situation forces one to horde it if one is involved in any kind of trade, particularly in import. The silly new term “cash baron” is supposed to conjure up the image of a sinister black marketeer who keeps large amounts of currency in order to deal on the “illegal” forex black market.
But one could easily make a case for the fact that it is not the dealing of forex outside official channels that is a problem. It is instead the ridiculously, unrealistically low exchange rates of the official channels that make it pretty much inevitable that anyone with forex will avoid those official channels like the plague and seek to sell it on the “illegal” black market. With so little forex available on the official market, buyers must resort to the black market. As the local currency hourly deteriorates in value from 10,000+% inflation, those buyers need higher amounts of Zim dollars everyday to purchase the same amount of hard currency.
By criminalising human behaviour that is entirely predictable under the circumstances, the authorities create a whole new list of “crimes” but also create an impossible situation for themselves. The reasons and incentives for dealing on the “black” money exchange market are so much more powerful than the fear of running afoul of the law that everybody is now technically a criminal in this regard, including the central bank and the government itself. In such a situation the applicable laws are nonsense, only useful for “getting” a few deliberately targeted people for show, but absolutely useless as a deterrent to the “crime.” It cannot and is not working.
We have now got accustomed to saying and believing “Zimbabwe has a shortage of foreign currency.” And indeed the country earns much less from exports and tourism than it is used to, and no longer has access to many of the sources of international credit it could count on in previous years. But it is also clear from the size and thriving nature of “the black market” that if you are willing to pay the free market rates, foreign currency is available in Zimbabwe. What is in real short short supply is forex at the low, government-stipulated rates that no sane person would willingly sell their hard currency at.
There is the interesting case of the 24 year old woman who was recently arrested and demonized in the Zimbabwean media for being a “cash baroness.” She was caught with Z$10 billion of the new $500,000 notes within days of this new currency denomination being introduced. This was despite the daily bank withdrawal limits for individuals being only Z$50 million (US$35 at today’s rate) and double that for companies.
In other words, if she had that much money in her account, it would have taken her 100 withdrawal-days to get it out through legitimate channels. It is not thought she bought it off the streets for forex because (1) the Z$500,000 denomination currency note was only a few days in circulation and not then widely available and more importantly, (2) the Z$10 billion was still neatly, tightly packed in its original Reserve Bank of Zimbabwe plastic wrapping!
The implication is that someone, unlikely to be her, either got much more from a bank than they should have been allowed, or that they got it straight from the RBZ itself! Indeed, there have long been allegations that the RBZ is one of the biggest customers of the black market forex dealers, despite Gono’s regular rhetorical huffing and puffing against them.
In an open society the several stunning revelations of the Mutekedeke case would have brought down the whole elaborate house of cards that is the foreign currency trading system in Zimbabwe. It would have exposed many of the country’s high and mighty as people who say one thing while regularly doing the exact opposite, to their considerable benefit and to the great suffering of the country.
The term “cash baron” may be meant to suggest an evil saboteur out to deliberately wreck the economy and inconvenience people. But the phenomenon of hoarding large amounts of cash is not the problem per se, but just another symptom of all the structural things that are wrong in the Zimbabwean economy as well as its overall body politic.
But for whatever it is worth, the internal contradictions of the whole system of the country’s rulership are becoming clearer by the day.