Cash for sale in Zimbabwe, 20% more for US Dollars;. Full Details
Holders of $100 and $50
notes can sell them at a
premium in Zimbabwe,
underscoring a huge
currency shortage despite
bond notes being brought
into circulation late last
year
IT’S official: cash is on sale in
Zimbabwe. But not just any kind of cash — highvalue denominations of the US
dollar are the most soughtafter notes
on the market.
Cash starved and desperate foreign
investors are paying a premium for $50
and $100 notes. Black market dealers
are paying a cool 15%20% premium for
crisp Benjamin Franklins and about
10%15% for $50 notes.
This comes after central bank governor John Mangudya introduced bond notes
to ease a cash crisis in November.
The US dollar has become scarcer since
then.
But how does it work?
Thanks to tight exchangecontrol regulations on foreign payments instituted by
Mangudya last year, there is strong demand for highvalue notes.
The lucky holder of a $100 note will get up to $120 from a dealer in smaller US
dollar denominations, such as the $20, $10, $5, $2 and even $1 notes. The
soughtafter denominations are then sold at a slightly higher rate, and quickly
find their way to various destinations around the world. The Financial Mail has
established this from a number of cash dealers, who would not be named.
Smaller denominations make it tougher to move cash out of the country, while
highvalue ones can be smuggled out under the watch of unsuspecting authorities in small but valuable wads.
So far, no arrests have been made by the authorities, who have threatened to
descend heavily on unscrupulous traders as trade booms in the capital.
Apart from dealers, other buyers want US dollars to preserve value amid
inflation fears.
Mangudya last year said a total of $2bn had left the country illegally.
A traveller can take a limit of $1,000 and R20,000 out of the country at a time.
Though daily cash withdrawal limits were reduced to $1,000 by the central
bank, banks offer limits of as little as $20/day, and a maximum of $100 paid mostly through bond notes and coins.
Banks say deposits are also not forthcoming, as clients are holding on to cash.
And heightened inflation fears have led people with healthy bank balances to move funds out of their banks.
Analysts say the withholding of deposits is part of a wider plan by
Zimbabweans to preserve value and prevent a recurrence of 2007/2008, when
balances were reduced to nought due to hyperinflation. The practice has been
prevalent for a few months, banking executives told the Financial Mail on
condition of anonymity.
Even the bond note is being traded by individuals seeking quick cash, with a
rate of up to 10% for amounts under the 1,000bond note. For amounts higher
than the 1,000bond note, individuals get charged as much as 15%20%.
But bond notes, like the US dollar — the unit they are said to be equivalent to — are scarce in the market.
Analysts say Mangudya is playing it smart in a market that is betting on him to
introduce an excess of bond notes. He claims the currency is backed by a
$200m African Export Import Bank bond facility, though the bank has not
confirmed its existence. He said two weeks ago that $120m of bond notes had
been released into circulation.
Mangudya’s predecessor at the central bank, Gideon Gono, is widely blamed for
runaway inflation that eroded the value of savings in 2008 in a bid to prop up
President Robert Mugabe’s rule through quasifiscal interventions.
Zimbabwe’s cash situation has hurt companies. Tiger Brands, which holds a
37% equity stake in the country’s largest miller and stockfeed producer,
National Foods, struggled last year to get dividends due to it after banks’
nostro accounts ran dry.
A nostro account is a foreign currency account that a bank holds with another
bank.
Only last week the central bank said it was finalising documentation to draw
down on a $220m nostro stabilisation facility, which Mangudya said would ease
a foreign payments backlog. He said Zimbabwe had $250m in nostro accounts,
a paltry amount considering high imports into the country.
The country imported goods worth $5.2bn in 2016, compared with $2.8bn in
exports.
The introduction of the facility comes at a time when banks have struggled to
process foreign payments due to depleting nostros. As a result, companies
have failed to pay for imported raw materials, thereby threatening industries.
The lucky holder of a $100 note will get up to $120 from a dealer in smaller US
dollar denominations. The soughtafter denominations are then sold at a
slightly higher rate.
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