Cash versus the Digital Currency and RTGS
The RBZ should know that ordinary people in the street need cash for various reasons. The people in the informal sector and the unbanked need both the Zimbabwean dollar and the US dollar for transactional purposes for their day-to-day use. The informal sector and the unbanked do not need digital currencies(RTGS) but want hard cash unlike the formal sector and those who have access to banks and banking facilities. The RBZ is making it difficult for the informal sector by reducing bank cash withdrawals.
Effect of Low Cash Withdrawl Limit
The effect of the low cash withdrawal limit imposed by the Reserve Bank of Zimbabwe has caused the rates of the RTGS against the US dollar and the Zimbabwean dollar to rise sharply on the black market. It is the formal sector that is driving the rate of the RTGS black market rate as companies are buying the US dollar on the black market instead of going to the RBZ auction. The informal sector plays a small role in the black market as they have little or no access to the RTGS. The cash rate in the informal sector is lower than both the black market rate and the RBZ auction rate.
Value of Physical Money and Cash Rate
The RBZ is failing to appreciate that physical money in Zimbabwean dollars or USA dollars has an intrinsic value which carries a positive premium versus the negative premium on RTGS.The negative premium results in the RTGS having costs loaded on every RTGS transaction.
Physical money, which a person can touch and get immediate value after a transaction carries more weight than the RTGS or its digital equivalent which needs third parties to complete a transaction. It is a fact that almost all transactions in the informal sector are done on a cash basis as compared to the formal sector.
The Power of Cash
The cash rate, the value of cash against the US dollar, is lower than the RBZ auction rate and the black market rate. This indicates that the Zimbabwean dollar has a role to play in our economy both in the formal and informal sectors. The RBZ should exploit the power of cash by pegging the Zimbabwean dollar cash withdrawal limit to the auction rate. The RBZ must recognise that the local currency withdrawal limit plays a role in stabilising the foreign exchange rate.
Accessibility as a Cost
The informal sector, the unbankable and the rural population need help accessing banking facilities like bank cards and banks. These people can only access banks through third parties at a cost. The costs of using RTGS are loaded on their transactions via government taxes, bank charges, unavailability of power, mobile network availability and transport costs to convert the RTGS into cash at the physical bank.
My argument is that the Reserve Bank of Zimbabwe must increase the withdrawal limits for the people to have access to cash. This will improve the use of our local currency and increase our confidence in the Zimbabwean Dollar.
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