The move by the Reserve Bank of Zimbabwe (RBZ) to lift the $10 000 cap on cash withdrawals is a welcome development that should instil confidence in the banking public that had begun to have doubts in the countrys financial services sector.
Finance minister Tendai Biti a fortnight ago ordered the reversal of an earlier order by the RBZ to limit cash withdrawals as part of measures instituted to address the liquidity challenges in the economy that became apparent in December last year.
The central bank attributed the liquidity challenges experienced to high-value and high-volume payments, which caused gridlock in the real-time gross settlement system (RTGS).
Cash withdrawal notice periods for high-value cash withdrawals had been set at $10 00$20 000 (one day), $20 001 $30 000 (two days), $30 001$40 000 (three days), $40 001 $50 000 (four days) and $50 001 and above (five days).
However, given depositors history with cash withdrawal limits, the move by the RBZ was not well thought out.
In its Monthly Economic Review for February, the African Development Bank (AfDB) warned putting caps on cash withdrawals was detrimental to the economy.
Cash limits can result in weakening bank depositor confidence, panic withdrawals, reduced bank deposits, deposit flight from weak to strong banks, externalisation of cash and investments in illiquid assets, reads part of the report.
We agree with the AfDB that cash limits can easily result in weakening bank depositor confidence, panic bank withdrawals, reduced bank deposits, deposit flight from weak banks to strong banks, externalisation of cash and investments in illiquid assets.
Already indications were that most people were investing in physical properties such as stands and shops in town, instead of financial assets.
This is not what the country wants at the moment.
While a cocktail of other measures have been announced including the liquidation of $110 million worth of Special Drawing Rights from the International Monetary Fund and repatriation by local banks of funds held in their offshore accounts this alone will only address the issue on a short-term basis.
What Zimbabwe needs is to increase its production base so that it can have a positive balance of trade.
The sad reality at the moment is that capacity in industries has remained below par and as such the country has become a supermarket for other countries, in particular South African companies.
The investment climate must also be conducive to attract Zimbabweans in and outside the country to invest locally.
The doublespeak on indigenisation at the moment only deters potential investors.