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ZIMBABWE: Much ado about money
IRIN News
August 18, 2006

http://www.irinnews.org/report.asp?ReportID=55187

HARARE - Long queues formed at post offices, known as the 'poor man's bank', as people desperately tried to exchange old Zimbabwean dollars for new denominations before the Monday deadline.

Commercial banks in the capital, Harare, were relatively quiet, despite conflicting statements by Zimbabwe's central bank and the high street banks about business hours. The Reserve Bank of Zimbabwe said banks "will be open on Saturday for the purpose of accepting deposits of old bearer cheques, and exchanging old bearer cheques for new bearer cheques only". No other transactions would take place.

However, many commercial banks and building societies said on Friday that they would be closed on Saturday to update computer systems ahead of the change to the new currency. "If at all there were people waiting for Saturday [to change money], then that is tough luck for them, because they are bound to lose out," said a bank manager, who declined to be named.

Zimbabweans were caught off-guard earlier this month when Reserve Bank Governor Gideon Gono introduced monetary reforms designed to rein in hyperinflation, which is hovering at about 1,000 percent. He set a three-week deadline for about Z$40 trillion (US$160 million) in old currency to be exchanged for a new denomination, and introduced a new official exchange rate of Z$250 to US$1, from the old official rate of Z$250,000 to the US dollar.

Individuals are only permitted to exchange Z$100 million (US$ 1,000 at the old official rate) daily, and companies were limited to Z$5 billion (US$50,000).

A branch manager at a commercial bank, who declined to be identified, said ahead of the August 21 deadline "we had actually made arrangements to have at least four tellers dealing with deposits of cash in the old notes only because we anticipated depositors to form long queues." He said the expected last minute rush at the branch had not occurred.

Innocent Makwiramiti, an economist and former chief executive officer of the Zimbabwe National Chamber of Commerce (ZNCC), speculated that people might have decided against surrendering high volumes of cash for fear of arrest.

Roadblocks were set up soon after Gono announced his currency reforms, leading to the arrest of thousands of people and the confiscation of Z$10 trillion (US$40 million). Individuals carrying more than Z$100 million (US$1,000) were deemed to have accrued it illegally, unless they had receipts to prove otherwise.

As much as Z$35 trillion (US$140 million) was estimated to have been circulating outside of the banking system - in the last ten days or so the central bank has stopped issuing statements on how much money it has seized at roadblocks.

"It should be remembered that a lot of people who held large amounts of cash did so illegally, and they are afraid of exposing themselves to the law enforcement agents," Makwiramiti said. "As a result, we might see notes flying in the streets following the expiry of the deadline," or otherwise people were "opting to blow it on beer, women and household commodities".

Many cash hoarders were from the ruling elite and were changing money outside of normal banking hours through influential connections with the banking sector, Makwiramiti said. "Most of the cash hoarders are the big fish who, because of their power, managed to smuggle trillions of the dollars to neighbouring countries, and they know just how to get it back. As a result, you would not see much activity in the banking halls, which are for the small-timers."

Foreign currency dealers operate in neighbouring states, exchanging money with cross-border traders coming from Zimbabwe.

Isaac Kwesu, economics lecturer at the University of Zimbabwe Graduate School of Management, said the central bank might be lacking data on how much money it had in circulation, which might be the reason for the slow business at the commercial banks.

"This could just signal how down and low business is - that money is not circulating as much as it should because industry and commerce are cramped. For people in formal employment, there is hardly anything to surrender because their salaries are too low, and whatever they get is quickly spent in the shops," Kwesu said.

Businesses have already started refusing the old currency as legal tender, contravening the central bank's instruction that it remained valid up until the August 21 deadline. Samson Phiri, financial director of a leading wholesale chain in Harare, said they have stopped accepting the old denominations because it was inconveniencing business.

"Just like the banks, we need to be compliant with the new system that deals with the new notes, but the main reason for stopping dealing in the old currency is that the process of surrendering them to the banks is cumbersome. We are made to produce each and every invoice, and are asked too many questions, not to mention that the process takes too long and claims too much of our business time," he said.

Sara Mujaji, a customer at the store, said she was being treated unfairly, as "the banks are not issuing us with enough new notes for us to make the purchases that we want".

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