eBusiness Weekly
Last Word
The imminent introduction of the $100 note is a sign of the times, that the value of the Zimbabwe dollar has been eroded by inflation, but the sheer small value of the new note means that it physically cannot be inflationary in itself: you have to start thinking the old 50c bond coins were inflationary if you want to follow that route.
Using this week’s auction rate, a $100 note is worth just under 68,65 US cents putting it well inside the coin range and making it impossible to use as a store of value.
On the black market it is even worse of course, being worth anything between 35c US and 45c US depending on whether you are buying or selling local currency notes and just who you are dealing with.
So those who have Gideon Gono nightmares of the printing presses flooding the market are barking up a very strange tree.
To print $1 billion, and this would be small potatoes when it comes to major financing, would need 10 million notes and some large trucks.
The notes would cost more to print than their face value considering the price of high-grade paper and the rather fancy inks needed for security features. Intaglio printing is wasteful of inks.
Even buying a week of groceries in a supermarket for cash would need at least 50 of them and by the time we are taking advantage of a special Easter offer on televisions we are a talking about a pile of at least 1000 and the television would not be that fancy.
While some people do shop with banknotes they do so with US dollar notes or rand notes, not with local currency bank notes.
The idea that people use local currency cash for even modest purchases is long gone and Zimbabweans got out of that habit of queuing at tills to hand over local cash some time ago, as no doubt the authorities intended.
We now usually pass over a debit card or start fiddling with our phone and our good friend the Minister of Finance and Economic Development picks up his 2 percent as we do so.
When you look at it, his reduction of VAT from 15 percent to 14,5 percent was not that wonderful.
We are in fact paying closer to 16,5 percent in consumption taxes and if for some obscure reason we managed to get bundles of notes out of a bank we would be paying even more since banks charge the fees and taxes to issue cash.
Even the street black-market dealers factor this in giving you more if you take “Ecocash” than if you take notes, despite Prof Mthuli Ncube’s little tax.
This is not to say that the notes are useless. They fill a very definite need, but for small change.
Probably the largest consumer of these notes are the urban public transport operators.
A fairly standard Zupco fare is $100, although how long that will last is anyone’s guess but requires a political decision to change.
The mushikashika vary fares. But trips under 10km in non-peak directions, the bottom rate, are now around $120 going up to $150 as traffic flows in the desired direction rise and with a few scalpers looking for $200.
These drivers of little cars tend to say “50c”, but obviously need to give the alternative and so shout out a number in “bond”, still the slang term, or else take a US$1 and give change in what someone offers in local currency.
Others who use the notes are vendors selling small items or single items. If you want one soft drink or one ice cream or one banana or a couple of sweets or even a face mask you have to use local banknotes, and even with the $100 note you will still need to have the $20s and $50s to make up the street price for many of these little items.
The $2 and $5 notes, although still legal tender, have vanished long ago and the $10 notes are exceptionally rare and no longer come out of banks.
A lot of this need for small change could be met by the tap cards that NMB pushed hard to introduce and which a fair slice of the Zupco fleet, both its own buses and the far larger number on urban routes of franchise holders, did offer and some insisted on.
There was a bit of consumer resistance but it was working.
Then it stopped. Some of the problem was apparently the card readers and some arose out of the actual card system.
There was the incredibly irritating security feature that suspended the card if it was not used for a couple of weeks and the only way to reactivate it, even if you had money in the card, was to queue up and buy more for the card. Admittedly Zupco manned a booth at all major bus terminuses that accepted debit cards and mobile money.
But unless the majority of buses accepted cards this was a problem, especially when you were standing in the rain at a bus stop somewhere by yourself knowing you had several fares in your card and then found that the card was dead and the conductor took no cash.
But the basic idea was good and if Zupco and NMB were prepared to seek out feed-back from users, and make the card readers more ubiquitous, it could do a lot to replace cash, or at least a lot of cash.
The cards were fairly cheap, around the equivalent of US$1 and in theory lasted but to be useful they needed to be used frequently and that meant they had to be accepted.
Meanwhile it is back to cash, and you will find in most terminuses scruffy people with small wads of notes selling these for US dollars, quite often at US$1 at a time for someone needing a bus fare.
Most conductors and all mushikashika take very small denomination US notes, with a US$5 pushing it, and given change in local notes, but even the US dollar buyers in a bus terminus offer a better rate.
Of course the one telling and worrying sign of the new $100 note, rather than designing and stamping out a set of coins, is that the Reserve Bank of Zimbabwe does not yet feel the situation is stable enough to go for the expense of coins.
Inflation is down, and even the surge at the last few months is dying down, slowly, but at over 6 percent a month it is still not in the coin-making range.
If annual inflation was low, in the single figures, we could now manage without Zimbabwe dollar bank notes. Everyone has a phone, or at least anyone with money has a phone, and we could easily go to a cashless economy or rather finish off the movement to the cashless economy that we have grown used to.
But we would still need coins for bus fares and bananas, and even if the tap cards came back better for buses we would still need them for the bananas since card readers are not free and regardless of how cheap they are they would still absorb a fair slice of income from the person with a blanket on the pavement or pushing a cart.
So meanwhile we need the foldable coin substitutes.
The authorities are still pushing hard on inflation.
A lot of it is generated by the black market in foreign currency and that looks as though it is being manipulated, and manipulated by a fairly small number of people at the top of the food chains that start in the streets and rise up through several levels.
Clamping down on money supply growth and pushing up interest rates helps.
But when someone with a decent bundle of US notes can sit there and say from tomorrow they are worth 10 percent more that person is, in fact, creating a money supply.
The interest rates rises are a traditional way of curbing growth in money supply, but again we are back to the mental attitudes.
If someone thinks inflation is above the interest rate, and even if they do the sums and add in the fees that banks adore so it has to be significantly above the interest rate, there will still be people who borrow for speculation.
So once again we are faced with the determination of banks to feed consumer credit, because it is easy, low risk and profitable rather than the longer term production credit.
And those who play games on the black market are thus able to tap into the consumer credit.
