While addressing business stakeholders at the Zimbabwe National Chamber of Commerce (ZNCC) annual business review conference in Harare last week, Reserve Bank of Zimbabwe (RBZ) Deputy Governor Dr Khuphukile Mlambo said the “drip feeding” of new noes and coins was under the watchful eye of the Monetary Policy Committee (MPC) which was put in place to build confidence around monetary issues.
So far, $110 million in new notes and coins have been “drip-fed” into the banking system since their introduction last month. The new notes and coins were the central bank’s measures to ease cash shortages and to build confidence around the newly-introduced currency, but Dr Mlambo emphasized that the process will be conducted cautiously in a way that does not fuel unnecessary broad money supply.
“On the confidence-building measures we have put MPC in place and it has met three times since they were established in October. “Under the MPC we have tackled the issue of cash by now we have injected up to $110 million cash in the economy which I think will help in terms of reducing queues.
“I want to stress that we have not increased the amount of money supply. We increased the ratio of cash to electronic money, that is what we have changed. That signal is very important because when they see new notes they think the central bank is back at it again, we are just making sure there is more cash for people.
“We want to target that money (supply) grows at a reasonable rate,” said the Deputy Governor. Due to cash shortages, cash premiums had by the end of October risen to as much as 60 percent, making it unbearable for the ordinary citizens to access cash.
Cash premiums have since narrowed to 35 percent or less. However, the central bank intends to increase the amount of cash in circulation to about 10 percent of total money supply, which has been growing in line with the weakening exchange rate.
A weaker exchange rate means all foreign currency holdings in the banking sector are converted to local dollars at a higher exchange rate, fuelling money supply growth.