Mobile and electronic modes of payment are seen maintaining their dominance in Zimbabwe’s payment systems into the future amid indications cash supply as of December 31 was a paltry 3,2 percent of total deposits in the economy.
Although the Reserve Bank of Zimbabwe has vowed to increase cash supply to 10 percent of deposits from the current 3,2 percent, according to a Monetary Policy Committee Communiqué released today by the central bank, electronic modes of payment such as internet banking, mobile money, Zipit and RTGs are expected to rule the roost into the future.
At 90 percent, electronic modes of payment will still rule the roost with indications the RBZ could fail to reach the 10 percent mark as inflation skyrockets. The implied annual inflation rate for December was above 500 percent.
If the RBZ gives into temptation to print more money, this will further drive inflation.
“The MPC agreed that it should maintain its plan of getting the proportion of bank notes and coins in circulation up to 10 percent of deposits and that the Bank should consider the introduction of notes in larger denominations in line with inflation trends,” said the RBZ.
Following its decision in October 2019 to increase the quantity of bank notes and coins in the local market to try and reduce the premium being incurred on cash and to give the public more access to their cash balances with financial institutions, the bank has imported additional bank notes and coins to the tune & of ZW$400 million.
An amount of ZW$150 million was disbursed in the last quarter of 2019 to give a total of ZW$1.1 billion of notes and coins in circulation in the country as at 31st December 2019.
This ZW$1.1 billion of notes and coins in circulation, represents 3.2% of total banking sector deposits of ZW$34.5 billion as at 31 December 2019. As per normal banking practice, these funds were sold to local banks for distribution to clients in exchange for RTGS balances, so as to neutralize any expansion of money supply and therefore, inflation.
Meanwhile, the central bank reviewed minimum capital requirements for banks to ZW$ equivalent to the following USD amounts;US$30 million for large indigenous commercial banks and all foreign banks, US$20 million for commercial banks, merchant banks, building societies, development banks, finance and discount houses, US$5 million for deposit taking microfinance institutions and US$25,000 for credit only microfinance institutions. the financial institutions are required to comply by end of 2020.
The RBZ said the interest rate on the Medium-term Bank Accommodation (MBA) facility shall continue to reflect the yield on the Treasury Bills auction rate which is currently at between 15 to 18 percent.
The MPC agreed to uphold its position that Government subsidies, such as the gold incentive, should be financed from the national budget without recourse to central bank financing. The Committee noted that failure to adhere to this principle would destabilise exchange rates and disrupt the inflation management program adopted by the Bank.
The Committee also recognized the need to gradually build up gold and foreign currency reserves to boost confidence in the domestic currency as well as strengthen investor sentiment.