Can going cashless save Zimbabwe?

Since the hyperinflation of 2009, Zimbabwe has depended largely on the U.S. dollar. But given the country’s political and economic troubles and the introduction of “bond” notes, many have begun hoarding cash.

The cash liquidity crunch is extreme. Locals are forced to queue for hours outside banks for the chance to withdraw a maximum of $50 from their account each day — and some are even being turned away simply because the banks don’t have enough cash in their vaults.

IHS economist, Alisa Strobel, told CNN the cash-flow crisis has been evolving for a few years and is fueled by low confidence in the country’s banking sector.

“The rise of uncertainty over the impact of the introduction of bond notes … has led to fears by the population of a repetition of 2009’s hyperinflation.”

She says people are making “panic withdrawals” because of the fear that the country is running out of money and that retailers are unlikely to willingly accept payments in bond notes.

President of the Bankers Association of Zimbabwe (BAZ), Charity Jinya, told CNN that banks are working on a solution to reduce the heavy reliance on cash.

“Banks have streamlined daily cash withdrawals and continue to encourage wider use of electronic [or] digital payment platforms,” she said.

So perhaps now is the perfect opportunity, analysts argue, for Zimbabwe to really embrace the latest technological developments and adopt an alternative solution to their crisis: a completely cashless society.

An electronic, cashless society

While the idea of a cashless society is new, Zimbabweans have only begun embracing digital payments purely out of necessity.

“It’s no longer an issue of choice, but [instead] what’s available to you as a means of making a payment or transaction work,” tech analyst, Nigel Gambanga told CNN.

“Over the past few months there’s been a lot of optimism about how plastic money has surged — it’s going up a rate of 15% each month.”

Locals are increasingly using mobile money, he said, estimating that three quarters of the population had an account which enabled them to send and receive payments at a push of a button.

BAZ president Jinya said mobile money transfers are just one of the ways Zimbabweans were “embracing the use of digital payment platforms.” Others included internet banking and the use of ‘plastic’ money — like debit cards — at point of sale machines.

But while Gambanga said a cashless society is a good idea, it’s not a long term fix: “The government still needs to fix the problems related to the monetary supply.”

He also added that while many large retailers and grocery stories “gladly” accept e-payments, many locals still face some challenges when buying items, particularly from the informal sector.

Fighting the demand for cash

Because many Zimbabweans work in the informal sector, cash is still being demanded as the only means of payment during sales.

“There’s still transactions that people face every month that requires a bit of a cash,” Gambanga said.

Many prefer cash payments because they import goods from across the border using foreign currency, he said, adding that if someone can only pay electronically, a premium will be added onto the final price.

“They’ll tell you it’ll cost $5 in cash but if you pay in mobile money it’ll cost you $7.50 because they’ll need to figure out how to access the money.”

BAZ’s Jinya said the association realized that the informal sector needed help adapting.

“Opportunities exist for the informal sector which needs technology that is easy to use and that will assist them to transact especially in low values.”

The crisis and the need for hard cash has also forced many into the black market, IHS economist Strobel said, where dealers are trading the dollar for electronic dollars for a higher rate.

A cashless society: a useful legacy of the crisis?

Laurence Chandy, a fellow at Brookings Institution’s global program, said that while a cashless society is “a way of lessening the chaos” in Zimbabwe, it can’t fix the crisis alone — people need to start trusting financial institutions again.

“People have reason to be distrusting,” he said, adding that a cashless society in Zimbabwe is only feasible if it can tick three boxes: confidence, affordability and reliability.

While Chandy believes payments in Zimbabwe’s could go completely digital, there’s still a lot of work to be done

People need to be confident their electronic money will be accepted as tender with anyone they transact with, there can’t be any additional charges for making the payments and the digital infrastructure needs to be flawless to ensure every payment goes through successfully.

“What mobile can do is deal with the affordability and reliability issue, but they can’t do much about the credibility issue.

“Ensuring confidence among its users isn’t entirely in a telco (telecommunication) company’s control.”

If broader reforms were made by the government and financial institutions which encouraged foreign investment and exports, Chandy explained, a cashless society could be highly beneficial in the long term for Zimbabwe.

“It would lend itself to an economy which is much more secure where transaction costs are much lower and where the informal economy could be incorporated into the formal sector because transactions can be monitored effectively.”

“I think that’s the possible upshot of all of this,” he said, “it might end up being a useful legacy of the crisis.”

“If we see broader reforms then it’ll accelerate Zimbabwe into this future paradigm cashless society.”

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