Identifier
Created
Classification
Origin
07HARARE1042
2007-11-23 09:29:00
CONFIDENTIAL
Embassy Harare
Cable title:  

CASH SHORTAGE HITS ZIMBABWE

Tags:  EFIN ECON PGOV ZI 
pdf how-to read a cable
VZCZCXRO3685
PP RUEHDU RUEHMR RUEHRN
DE RUEHSB #1042/01 3270929
ZNY CCCCC ZZH
P 230929Z NOV 07
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 2150
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1774
RUEHAR/AMEMBASSY ACCRA 1660
RUEHDS/AMEMBASSY ADDIS ABABA 1791
RUEHBY/AMEMBASSY CANBERRA 1068
RUEHDK/AMEMBASSY DAKAR 1417
RUEHKM/AMEMBASSY KAMPALA 1848
RUEHNR/AMEMBASSY NAIROBI 4276
RUEHGV/USMISSION GENEVA 0914
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC//DHO-7//
RUCPDOC/DEPT OF COMMERCE WASHDC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK//DOOC/ECMO/CC/DAO/DOB/DOI//
RUEPGBA/CDR USEUCOM INTEL VAIHINGEN GE//ECJ23-CH/ECJ5M//
C O N F I D E N T I A L SECTION 01 OF 03 HARARE 001042 

SIPDIS

SIPDIS

AF/S FOR S. HILL
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
TREASURY FOR J. RALYEA AND T.RAND
COMMERCE FOR BECKY ERKUL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS

E.O. 12958: DECL: 01/12/2016
TAGS: EFIN ECON PGOV ZI
SUBJECT: CASH SHORTAGE HITS ZIMBABWE

REF: HARARE 01003

Classified By: Pol/Econ Deputy Chief Frances Chisholm under Section 1.4
b/d

-------
Summary
-------

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 001042

SIPDIS

SIPDIS

AF/S FOR S. HILL
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
TREASURY FOR J. RALYEA AND T.RAND
COMMERCE FOR BECKY ERKUL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS

E.O. 12958: DECL: 01/12/2016
TAGS: EFIN ECON PGOV ZI
SUBJECT: CASH SHORTAGE HITS ZIMBABWE

REF: HARARE 01003

Classified By: Pol/Econ Deputy Chief Frances Chisholm under Section 1.4
b/d

--------------
Summary
--------------


1. (C) Zimbabwe is in the throes of a cash shortage crisis
that could threaten the stability of the financial sector.
With the Reserve Bank of Zimbabwe (RBZ) providing commercial
banks with less than half their cash requirement, bank
account holders are able to withdraw only a fraction of their
deposits. The Reserve Bank maintains that the shortage is a
result of a seasonal increase in demand, but banking sector
insiders believe the RBZ could be limiting cash in
circulation to reduce activity on the parallel market.
Ironically, the low supply of cash to banks has had the
perverse effect of worsening the crisis as depositors lose
confidence in the banks. The release of new notes with
another round of zeros slashed appears imminent. In the
meantime, cash-rich companies and individuals are able to
sell notes at a 10-20 percent premium to desperate buyers.
The RBZ's piecemeal and shortsighted attempts to combat
hyperinflation do nothing to address the underlying cause of
the problem - its own quasi-fiscal spending. End Summary

--------------
Wage and Salary Withdrawals Curtailed
--------------


2. (C) Zimbabwe is in the throes of a severe and worsening
cash shortage that began to surface about a month ago. At
the time, Deputy Governor of the Reserve Bank of Zimbabwe
(RBZ) Edward Mashiringwani, responsible for money markets,
told senior econ specialist that the problem was primarily
logistical and would soon be resolved. In the past weeks,
however, the shortage has become so severe that bank account
holders are lining up as early as daybreak to withdraw cash,
and the formally employed can access only a fraction of their
wages and salaries. In fact, most banks have stopped
stocking their ATMs for lack of cash. Illustrative of how

Zimbabweans cope, a shopper recently approached an Embassy
couple at the supermarket till offering to pay for their
groceries with his debit card in exchange for their thick
bundle of notes.

--------------
What shortage?
--------------


3. (C) The RBZ raised daily cash withdrawal limits for
individuals and companies from Z$10 and Z$20 million to Z$20
and Z$40 million respectively in its October 1 Monetary
Policy Statement, but commercial banks subsequently reduced
these limits to Z$5 and Z$10 million this week in an attempt
to ration scant cash. (Note: The parallel exchange rate for
cash is about Z$1.3 million:USD.) Large banks appear to be
worse affected than smaller banks. On November 20, for
example, Barclays Bank and CABS Building Society both lowered
their cash withdrawal limits for individuals to a ludicrous
Z$200,000, which is the new controlled price of a loaf of
bread (if any were available). The RBZ has acknowledged the
shortage, but, according to a report in the
government-controlled The Herald on November 21, it maintains
it is a reflection of the seasonal increase in the demand for

HARARE 00001042 002 OF 003


cash.

--------------
Combatting The Parallel Market
--------------


4. (C) Several bank branch managers told us that the RBZ was
not meeting their banks' cash orders. Chris Chikwanda,
senior manager of ZB's central cash department, said, for
example, ZB was getting less than 50 percent of its daily
cash order. Our interlocutors in the sector say that the RBZ
apparently believes businesses and traders are hoarding cash
and fuelling the black market in foreign exchange and goods.
By starving the market of cash, the RBZ apparently hopes to
induce the release of cash back into the formal system and
strike a blow to black market trading.


5. (C) Economic analyst John Robertson pointed out to
econoff on November 21 that the RBZ was also facing a massive
logistical problem of printing and distributing on a daily
basis over a million Z$200,000 notes - the highest
denominated note now in circulation and currently worth about
fifteen US cents on the parallel market. He referred to the
problems of printing press breakdowns and possible shortages
of ink and paper. While release of higher-denominated notes
would alleviate the shortage in the short run, he said it
would not remedy the accounting problem of trillions and
quadrillions or provide relief in the medium term as long as
inflation remained unchecked.

--------------
Imminent Launch of New Notes
--------------


6. (U) On November 22, The Herald quoted RBZ Governor Gono
as saying that launch of "Sunrise II," i.e. the replacement
of the much devalued notes was "very, very, very imminent,"
with "one, two, three or four" zeros to be lopped off this
time. In an indication that three zeros might be slashed on
this round, the same issue of The Herald carried a photograph
showing a new Z$500 note.

--------------
Cash As Commodity
--------------


7. (C) In the meantime, bank employees tell us cash is
commanding a 10-20 percent premium among cash-rich companies
and individuals. In apparent acknowledgement of the
practice, Gono condemned the sale of cash as a breach of
anti-money laundering guidelines in an article in The Herald
on November 21.


8. (C) In reaction to hyperinflation (reftel) and
uncertainty, suppliers have begun to demand cash payment
upfront rather than payment by bank transfer or check.
Furthermore, trade is shifting to the informal market as a
consequence of the price crackdown and supply disruption, and
informal traders rarely hold bank accounts. Unsurprisingly,
bank clients are avoiding depositing their cash without a
guarantee that they can access it freely. If the RBZ is
indeed intentionally withholding cash from the banks, the
perverse effect is, in fact, a worsening of the shortage.

--------------
Comment
--------------

HARARE 00001042 003 OF 003




9. (C) As long as the RBZ continues to engage in the
quasi-fiscal activities that are at the root of Zimbabwe's
money supply growth and hyperinflation, it will not address
the real cause of the cash crisis. As the rate of inflation
quickens, the demand for cash will inevitably rise in
lockstep, and the RBZ's inability and/or unwillingness to
meet the demand threatens the stability of the financial
sector as more and more transactions shift to the informal
and unbanked sector. Lopping another three zeros off the
currency, which appears to be imminent, is nothing more than
yet another piecemeal and shortsighted solution to Zimbabwe's
deep economic woes.


MCGEE