Fear over Possible New Currency Prompts Bank Run in Zimbabwe

A prolonged shortage of the U.S. dollar, the dominant circulating currency in Zimbabwe, has worsened over the past two weeks as panicky clients queued up at banks to withdraw money, fearing that the greenback might be replaced by a new local currency soon.
The long queues, seen daily at most bank branches in the city center of capital Harare, were triggered by the authorities’ decision announced earlier this month to cap daily cash withdrawals at 1,000 U.S. dollars and to introduce “bond notes” worth a total of 200 million U.S. dollars.
Zimbabwe dumped the hyperinflation-battered Zimbabwe dollar in 2009 and adopted the U.S. dollar and eight other foreign currencies as legal tenders. Now the currency system is largely dominated by the U.S. dollar.
Patrick Muroyiwa, a local carpenter, said he found it difficult to accept the bond notes after using the U.S. dollar for trade for seven years. “It is like every time I make a withdrawal from the bank, they give me a worthless piece of paper and remain with my hard cash,” he said.
The sentiment is shared by many working class Zimbabweans who had lived through the agonizing experience of witnessing savings and pensions wiped out by hyperinflation, which peaked in 2008.
The ongoing bank run has forced banks to cut their daily withdraw limits to 200 U.S. dollars in merely two weeks. Some of the struggling bank branches had to turn away clients who queued for hours for as little as 50 U.S. dollars.
A teller at Barclays Bank, who spoke on condition of anonymity, said the bank had been limiting withdrawals for individuals to 500 U.S. dollars per day over the past days, but had further reduced the limit to 100 U.S. dollars last Friday.
“Getting my money in the bank has become a nightmare. I joined the queue at eight in the morning but it’s now more than four hours and I have still not been able to withdraw,” said Norah Chonge, a dejected Harare resident.

Social media, meanwhile, is awash with people asking questions on the bond notes and whether the return of the dreaded Zimbabwe dollar — whose last trading rate was 35 trillion to 1 U.S. dollar — is imminent.
In an interview with Xinhua, John Mangudya, governor of the Reserve Bank of Zimbabwe, the central bank, downplayed the bank run, saying the issuance of bond notes will be delayed. It had originally been planned for June.
“They (bond notes) will be introduced in October 2016 and we are not in a hurry to introduce them because the multi-currency system is here to stay,” Mangudya said. “There is no change in that policy.”
He said the bond notes would be introduced to sustain the multi-currency system comprising the currencies of major economies.
Central Bank Deputy Governor Kupukile Mlambo had previously assured the public that the authorities will not channel the U.S. dollar out of the market through back doors, and the amount of bond notes to be issued will not exceed 200 million U.S. dollars in total.
“Anyone who wants to travel to South Africa, the United Kingdom or any other country can still go to their bank and get their dollars,” he said.
Officials attributed the current greenback shortage to chronic trade deficits, a strong U.S. dollar and a fall in commodity prices.
Zimbabwe relies heavily on the export of raw minerals to sustain its economy. Meanwhile, most of the industrial and consumer goods are imported.
The country’s trade deficit widened from an average of 400 million U.S. dollars 10 years ago to 2.5 billion U.S. dollars in 2015.
Zimbabwe once faced a currency crisis around Christmas in 2014, with long queues seen in front of banks. But it was resolved within weeks.
This time it is more challenging. The government projected a 1.4-percent economic growth for the year, the lowest since 2009, as drought slashed output in the crucial agriculture sector while the mining sector has yet to recover due to a weak external demand.
Nevertheless, some economists see a bright side in the introduction of the bond notes.
“The positive side of it is that it encourages local circulation of money in our economy, instead of smuggling it out of the country,” said economist Clemence Machadu.
“No one would hoard the bond notes for the purposes of smuggling them outside the country, as they would serve no purpose there,” he said.
However, Christopher Mugaga, chief executive officer of the Zimbabwe National Chamber of Commerce, said while the introduction of the bond notes would improve the liquidity situation, it would also lead to a potential dwindling of confidence in the country’s financial authorities.
People would opt for spending instead of holding the bond notes, he said, while foreign investors would feel trapped in the country and “new investors won’t come in any time soon.”