As a result, local and international banks have suspended the use of MasterCard cards outside Zimbabwe’s borders, in a bid to conserve the little foreign currency in the country.
The hard cash in circulation, including bond notes and US dollars, was 5 percent of total bank deposits which has contributed to the country’s liquidity crisis, according to economist Ashok Chakravarti, who also advises the Office of the President and Cabinet on improving the ease of doing business.
“If you look at studies from other economies, the cash-to-deposit-ratio should be between 10 percent and 12 percent. If an economy has got less than 12percent, it faces a liquidity crisis We need $900m in cash to have adequate liquidity,” he said.
Hard cash circulation in the country has dropped by 53 percent from $642m in 2013 to $304m now. However, bank deposits increased from $4.728billion in 2013 to $6.2bn last year.
At the onset of the multi-currency system in February 2009, total deposits in the banking system were $1.66bn.
Cash-to-deposit ratio decreased from 35percent in 2009 to 5 percent last month.
The amount of cash held in Nostro accounts declined by 61.6 percent, from $424m in 2009 to $163m as of last November.
“When liquidity challenges first surfaced in 2014, the Reserve Bank of Zimbabwe reduced cash holdings in Nostro accounts from 30 percent to 5 percent of total deposits to improve the availability of cash in the economy. This decision simply led to externalisation of dollar cash, exacerbating the liquidity crisis,” said Chakravati.
One of Zimbabwe’s internationally-owned banks, Standard Chartered, has cancelled the use of its Visa cards outside Zimbabwe with immediate effect.
The bank’s move follows a similar one by CBZ Bank Limited, the country’s largest bank by deposits, which suspended use of its Visa card payment system last month.
EcoCash, a subsidiary of telecoms company Econet Wireless, recently reduced its daily cash limit of mobile money processed via its MasterCard service to $500.
Standard Chartered said the action had been taken to “ensure best use of the increasingly scarce foreign currency resources” due to the poor funding of all banks’ nostro accounts, from where Visa and/or MasterCard payments are drawn.
Foreign currency shortages forced the Reserve Bank of Zimbabwe to come up with a priority list meant to “promote efficient utilisation of foreign exchange and to re-orient import demand towards productive uses”. The list guides banks in the distribution of foreign currency towards competing demands.
However, Standard Chartered said the ban was not outright, as clients who wished to use their cards outside Zimbabwe may apply for special consideration 72 hours prior to their departure.
“Customers are requested to submit evidence of all the expected expenses to be incurred while travelling outside the country.”
Zimbabwe has been experiencing foreign currency shortages and as of last November, balances in nostro accounts were at $163.4m, while cash in bank vaults amounted to only $232m.
Central bank governor Dr John Mangudya said that from August last year to December, the bank had used more than $300m in current transactions through Visa and MasterCard.
He said Visa and MasterCard use were negatively affecting Nostro accounts in a situation he described as dire: “While others are exporting for productivity, others are busy using cards.”
Mangudya also said the continued usage of Visa and MasterCard cards was contributing to the challenges in adequately allocating foreign exchange funds as they were not going back into productivity.
Enterprising Zimbabweans have resorted to using their international cards to access cash abroad and from neighbouring countries.
The country’s liquidity crunch has forced most banks to impose stringent withdrawal limits, making it difficult to access savings.
Border towns such as Musina in SA and Francistown in Botswana, where international banks have operations, had become popular with Zimbabweans looking to access cash.
Economists expect the trend towards the suspension of international card payment platforms to increase as banks battle with depleting foreign currency reserves in their nostro accounts.
To resolve the liquidity crisis in the country, Chakravarti recommended that the government reduce its wage bill, stop the reissuing of Treasury Bills and borrowing from the private sector, repeal the indigenisation policy, and adopt the South African rand.
The business community has voiced its distrust of government methods of dealing with the acute cash shortage of bank notes and has pushed for the adoption of the rand – a suggestion the state turned down.
Chakravati has previously suggested a 3percent import levy across the board which he said could raise $2bn (annually) to incentivise exporters in real currency instead of the bond note incentive.