By Public Finance International
THE Zimbabwean government needs to regain the trust of the people to achieve its aim of creating a ‘cashless society’, an Overseas Development Institute research fellow has told PF International.
It also needs to improve the public’s faith in the finance sector for its citizens to move away from using cash, the ODI’s Judith Tyson has said.
She talked to PF International after the country’s finance and economic development minister Patrick Chinamasa announced last week that Zimbabweans are now conducting 96% of their transactions electronically.
The Zimbabwean government wants to move towards a cashless society because of the difficulty in obtaining US dollars – the main form of cash in the country.
Tyson told PF International: “The problem with electronic money is it depends on people’s confidence in the banks [including the central banks] and everybody knows the government is bankrupt.
“There’s a big confidence problem to overcome and that’s a very long-term thing to turn around, especially in Zimbabwe where business and confidence is so low.”
She added: “It’s a long path when you have that long history of problems. They need to keep doing the right thing. But they’ve got a long road.
“The financial sector itself is in shocking trouble. The government have not been able to make payments and have not been able to get credit.”
She explained that even though the official figure of using digital currency rather than cash is 96% it might be below that – as cash transactions could not always be traced.
The southern African country has had a liquidity crisis for two years and there has been a physical lack of cash, with people often queuing for cash every morning. The government has tried to combat this by introducing digital payments.
Tyson added that people in Zimbabwe have a lack of confidence in commercial banks and the central bank, partly because of its history of hyperinflation, which forced the country to abandon its currency in 2009.
Zimbabweans have little trust in the government as it is perceived as corrupt, Tyson explained.
Chinamasa, responding to a question after his announcement last week, said that because of Zimbabwe’s cash shortages that the country had “overtaken Kenya in terms of the number of transactions that are transacted electronically”.
He added that developed and developing countries are moving towards a cashless society.
“The challenges we have met because of cash shortages have expedited the movement of our people towards a cashless society to the extent that of the $97bn transactions that have been transacted in this country, 96% of them are electronic.”
Kenya is now considered to be an almost entirely cashless society and Tyson said that had had a positive impact on that country’s economy, such as domestic savings and efficiency.
Cashless societies are able to generate more tax revenue as the authorities have been able to see basic transactions and are able to tax them, Tyson also told PF International.
Tyson believed Zimbabweans might eventually be forced into using electronic payments if the government stops allowing dollars into the country. Although, she added, this could create a ‘black market’ for cash.
The country also accepts a number of other foreign currencies, such as the South African rand.
A couple of years ago, the Reserve Bank of Zimbabwe issued ‘bond notes’ as an alternative currency to get around the problem of not being able to bring in enough physical US dollars.
But this was not successful as the bond was unpopular with the public, Tyson also told PF International.