RBZ Ban On Cash-in & Cash-out Will Make Things Worse

Kutsvaga kweashaya, kutsvaga uta nemugate. That’s a Shona proverb which translates to “The frantic search of someone who has lost something and has no hope of finding it, s/he will look for a hunting bow even in a clay pot.” This is very descriptive of Zimbabwe’s government and central bank.

Everyone else’s fault but the guilty guy

Zimbabwe’s economy and particularly currency has been on a tailspin since 2016 but the craze has been accelerating from October 2018 to date and it ain’t getting better. In a fashion that reminds one of George Owel’s 1984, the Minister of Finance Mthuli Ncube prefers to plot graphs and tell us that things are actually better today than they were yesterday. He is attempting to convince our bellies that what they feel is not hunger using graphs that we don’t always understand.

His colleague at the helm of the Reserve Bank of Zimbabwe just pretends (convincingly) to be clueless to the goings on. The blame always lies with someone else and not the RBZ or the government. The recent villain has been EcoCash and its agents. According to the authorities, these guys are the reason why prices are going up and why Zimbabweans just can’t catch a break. Even the anti corruption commission weighed in against EcoCash and its agents. Ridiculous is what this is.

The ban

Today the central bank has issued a directive (another one) banning mobile money cash-in and cash-out with immediate effect. They say this is because there has been abuse of this facility to sell cash and distort markets. Is this true? Yes it’s true that mobile money agents are selling cash but the fact is they are taking advantage of an arbitrage opportunity and not inventing that opportunity themselves.

The real problem

Arbitrage opportunities were created by the RBZ and the government. Most people including Strive Masiyiwa who agree with my statement here think that the government is responsible for this problem because of the shortage of cash that has plagued the country for two years now. This is true but I don’t think it is the bigger root.

The bigger problem is that the government and the RBZ cannot and must not be trusted. As such, money that is held in a bank account or mobile money wallet is less valuable than cash you hold even if that cash is just bond notes. Why? Money in an account is subject to the whims and dictates of these two institutions that are always changing goal posts.

Prophet Market

When there is such uncertainty, the market responds and in this case the market is responding by placing less value on banked money. Reason? How you can use that money or if you can at all is subject to Mangudya’s mood.

A merchant will charge you more for paying into their bank account if they can because of the risk associated with Mangudya’s mood. Every decision made by Ncube and Mangudya has confirmed the market’s opinion. Ncube introduced a punitive 2% tax on electronic transactions which actually confirms that electronic money is less equal to cash. The 2% in itself is a good enough reason for a merchant to sell goods at a higher price if payment is not in cash.

The governemnt and central bank has changed posts countless times just confirming the market skepticism for funds that can be controlled by these goons. Banning of cash-in and cash-out itself is fulfillment of the market’s prophesy that if you have money in EcoCash it can be restricted at any time and thus it is worth less (or is it worthless).

Why EcoCash and not banks?

Someone may say my reasoning is flawed because there are no premiums charged when someone withdraws from the bank as there are when one does so via EcoCash. Well, EcoCash is a distributed network unlike the banking sector which is a handful of less than 20 institutions who are under the direct control of John Mangudya.

If banks could, they would charge you ridiculous amounts for transferring money from another bank to theirs and charge you less when you give them cash. However, EcoCash agents are closer to the real market where real value is determined by forces far greater than you and I nor Mangudya. Banks adhere to Mthuli Ncube’s graphs. You and I together with EcoCash agents dance to the beat of the hunger drum in our bellies.

How things will get worse

Restricting mobile money usage like what the RBZ has done is disastrous to small businesses. There is still not much cash lying around in the market. The only way small businesses can accept payment in EcoiCash is by actually increasing the premiums they place on stuff bought using EcoCash. They will find a way to get their money out of EcoCash or they will be forced to keep it there and only transact with someone else who will accept EcoCash. All this will cost money. A new industry will form of people who will solve the problem of getting money out of EcoCash and high fees will be charged.

The second thing that will go wrong is that EcoCash will actually become more entrenched as a currency in its own right. There will be no more movement of value out of EcoCash into other parallel channels and vice versa. Now, EcoCash is more dominant as a payments platform when it comes to consumer payments and peer to peer transactions. This may then cause the use of EcoCash exclusively with the platform becoming much stronger over time.

As long as the RBZ and the ED government is in denial and merely focused on witch hunts and looking for villains instead of confronting themselves, they will continue to make things worse for small businesses, big businesses and all of us.