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RBZ Govenor Mangudya Says There Is No Liquidity Crisis, We Have Enough Money In RTGS System. Haaya…

RBZ Governor, Dr John Mangudya

Dr John Mangudya always has a way of making me write articles even when I have planned not to. Yesterday he again declared that there is no cash crisis in Zimbabwe because there is a lot of money in the RTGS system. He is of course telling the truth and lying at the same time. Even so, he is not being sincere.

Before getting into how he is being truthful and lying at the same time, let’s explore the dichotomy of Zimbabwe’s economy:

One Country Two Economies

The price of goods and services is on the increase in Zimbabwe. The public transport (kombi) fair has been stagnant in Zimbabwe for a very long time even though the price of fuels has edged up over that very long period of time. This presents the classic illustration of parallel economies coexisting in Zimbabwe.


Pricing is different in Zimbabwe depending on what form of money you hold in your hand. If you have USD you can get stuff at the same price you could six months ago BUT where would you get USD and more importantly, you’d be crazy to spend the greenback if you had it. If you hold bond notes in your hand, you should get stuff at a low price but all I have just said merely exists in theory.

Prices are being pegged in RTGS currency and everybody except Mangudya apparently knows that RTGS is not equal to physical bond notes which are not equal to USD. In his 2018 budget presentation, Patrick Chinamasa the former and brand new Finance Minister (only in Zimbabwe!), all but admitted that we are in this mess because of printing of money through the RTGS system.

Why I said the above is theoretical is that very few people have real USD and even fewer are naive enough to spend them to buy bread. Equally we have very little of the physical bond notes and coins and the little we have will go to the non negotiating hwindi (public transport conductor). This means all other prices except kombi fairs are pegged in RTGS currency terms which is useless outside our borders.

For a country that is importing every other necessity, prices will always respond to the cost of acquiring the currency that is needed to buy the said imports. That cost should not be confined to the exchange rate between RTGS currency and USD otherwise we will engage in a war against retailers as seems to be the stance adopted by our president and his former commander of the military.

The cost must factor in the delays that the whole arrangement of sourcing foreign currency introduce, the risk of trading on the outlawed black market and the risk of the exchange rate changing whilst you still have inventory you purchased at a lower RTGS to USD rate.

Another big factor is that retailers who import have to buy less inventory more times in a given period increasing the costs of logistics etc. They have to because they do not want the exchange rate to change whilst they still hold stock besides the fact that they may actually not be able to access enough USD to fill up their warehouses at any one time.

True Dr John. There Is Liquidity In Zimbabwe

Technically yes VaMangudya is saying the truth, there is liquidity in Zimbabwe, in fact too much of it. In RTGS terms there is too much liquidity. The simplified definition of inflation which I love states that inflation is too much money chasing too few goods. The few goods being imported into Zimbabwe are being chased by hoards upon hoards of government printed RTGS money. Result: Inflation whose important manifestation is price increase.

If we look at the USD and any other foreign currency in Zimbabwe as goods you realise they too are very few goods that are being chased by truckloads of ‘RTGS non money.’ Result: USD to RTGS exchange rate skyrockets. So, yes very true Dr John Mangudya there is liquidity in Zimbabwe, an RTGS liquidity. However, the RTGS liquidity is actually a crisis not because it’s not there but because it is too much.

False Dr John. There Is A Liquidity Crisis In Zimbabwe

Besides the above described liquidity crisis of too much RTGS liquidity there is the other obvious liquidity crisis of no money in Zimbabwe. In his remarks, VaMangudya stressed that we have a lot of money in the RTGS system and this is the true measure of economic performance and we should use this RTGS money to produce so we earn foreign currency.

Hang on! The last time I checked my RTGS account statement it claimed that I had US dollars. If what is in our bank accounts is US dollars which was foreign currency the last time I checked, how then do we need to use it to produce and export so we earn foreign currency? Indirectly VaMangudya confirmed what we have always known and what Chinamasa already admitted in His budget statement:

RTGS Thy Name Is Zim Dollar

To be fair on the Zim dollar, RTGS money in Zimbabwe right now is worse than the Zimbabwean dollar. Why? The Zim dollar never played pretend. It was the Zim dollar and lost value as the Zim dollar- no confusion. Now, money in our bank accounts is pretending to be US dollars and bond notes of which the latter is itself pretending to be the USD. Crazy!

There is a lot of confusion over what we actually hold in our accounts. There is therefore a serious liquidity crisis in Zimbabwe because there is actually no money in Zimbabwe right now. Our bank accounts are brimming with pretend money, it can’t get more ‘iliquid’ than that.

The final conclusion thus has to be that Dr Mangudya is being very insincere. Zimbabwe has a double barreled liquidity crisis: on the one hand too much liquidity in the ‘non money RTGS’ terms and on the other hand, too little liquidity in real currency terms. Zvakaoma…

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