Ecocash Directive: RBZ’s Last Hail Mary

RBZ Now Says ALL FUEL Can Be Sold In United States Dollars

 RBZ’s Last Hail Mary | Terence Zimwara

Ecocash Directive: RBZ’s Last Hail Mary


The recent decision by Reserve Bank of Zimbabwe (RBZ) to clampdown on Cassava Smartech’s Ecocash mobile money service through another directive marks the second time in less than a year the former has made such a desperate move. This time there are even bizarre allegations that the mobile money service is, in fact, a giant Ponzi scheme!

In round two of this duel, the central bank issued a directive that caps the value of transactions that Ecocash agents can handle to ZWL $100 000 or roughly US$2 000 per month. On top of that, it froze accounts that had already exceeded the $100 000 threshold, a figure which it unilaterally set.

There is no doubt that this threshold is ridiculously low and inconsistent with the country’s inflation trends. Just to give some perspective, the $100 000 or US$2000 threshold used to be the daily transaction limit of an individual user when the mobile money service went live. Now the RBZ, which okayed those limits in the past, believes the figure is now sufficient for one agent’s monthly transactions!

The directive will negatively affect the operations of many legitimate businesses that rely on this payment platform. For its part, Cassava— an Econet Wireless spin-off —has already lodged a complaint at the High Court and the RBZ may ultimately lose this battle despite presenting ‘evidence’ of alleged wrongdoing by the former.

This rash decision by the RBZ to single out a privately owned company is a culmination of a series of moves that started with the suspension of some Ecocash agents for their alleged involvement in fueling illegal foreign currency activities.

Next, the RBZ reacted to a video circulating on the social media of a man apparently boasting about how he got crisp five-dollar banknotes before they got to the bank. RBZ governor reacted almost immediately by appealing to members of the public for assistance in identifying the man in the video.

Before the news that the RBZ was looking for this man could filter down the central bank had already gone a step further by issuing this new directive.

At the time of writing at had been reported that the RBZ had this time put up a real fight in court than in the previous encounter.

Meanwhile, the haste with which RBZ announced this decision could easily be misconstrued to be a desperate plot to fish out the now infamous forex dealer and those backing him. The directive is akin to a fish farmer who drains out the whole pond just so he can catch one misbehaving eel. He might just succeed but this will come with significant collateral damage!

However, one has to be hopeful that the RBZ could not have taken this drastic measure just to spite this one individual as this decision inevitably inconveniences thousands of Ecocash agents. It is logical to presume that there might be a more plausible explanation for this move besides the reasons the RBZ is giving.

One reason could be that the RBZ acted to rein in the rapidly depreciating Zimbabwe Dollar. The local currency, which traded at par with the US dollar when it first appeared in late 2016, currently trades at about 1:50 (at time of writing).

Ecocash Directive: RBZ’s Last Hail Mary
Ecocash Directive: RBZ’s Last Hail Mary


And just before the country went into lockdown, the RBZ announced a series of policy changes that partially ended the so-called mono currency system while returning to fixing the exchange rate regime.

The Zim dollar was consequently fixed at 1:25 although parallel market rates at the time had surpassed the 1:40 ratio.

For a brief period following the start of the lockdown the rate actually receded. However, as soon people got the hang of what a lockdown really entails, some business activities resumed, the rate began to climb up again. Soon the rate was over 1:50 even as the economic activity remained generally subdued and this is what may have alarmed the RBZ.

However, such alarm—if indeed it is was prompted this rash decision—is misplaced because it ignores the fact that any movement of Zimbabwe’s exchange rate usually mirrors the economy’s foreign currency inflows versus outflows.

That has always been the case even though some local economic commentators now like to taper this view. These commentators argue that Zimbabwe supposedly generates more foreign currency than other countries in the region whose currencies are more stable than its own Zim dollar. Consequently, the country’s exchange rates woes have nothing to do with foreign currency generation.

This view is flawed because it seems to take into account the reported foreign currency inflows but ignores the mismatches between such inflows and outflows. Indeed foreign currency is generated but is immediately funnelled out of the country before it can circulate in the economy. There is no way such money can favourably influence the exchange rate. An exchange rate is only determined by real money and not values that reflect in some financial statements.


Ecocash Directive: RBZ’s Last Hail Mary
Ecocash Directive: RBZ’s Last Hail Mary


Therefore, the assessment that the economy is not generating enough foreign currency is more plausible. The laws of supply and demand are dictating the direction of the exchange rate based on this understanding. No amount of threats or directives will change this fact.

Meanwhile, RBZ allegations that overdraft facilities extended to known foreign currency dealers are accelerating its depreciation do not hold water. There is a clique that is known to spirit out foreign currency at whim with absolutely no regard for the effects this will have on the economy.

The RBZ can start to win this broader fight against currency depreciation if it starts targeting this group as well. Anything short of this will yield nothing but negative headlines.

In the meantime, it should be noted that this unfortunate decision by the RBZ also badly affect ordinary folks that use or depend on this mobile money service for accessing cash. With the country’s cash shortages entering the sixth year, the 54 000 Ecocash agents had been the only reliable source of cash albeit an expensive one.

However, the unrealistic transaction ceiling that has been set means a vital source of cash will become less reliable and that might cause a spike in the premium charged for customers that wish to cash out. Ecocash agents who are too eager to make up for the lost revenues will likely hike their fees and this affects the ordinary user already struggling with the resurgent hyperinflation and high taxation levels. The RBZ might not like it but this rational behaviour on the part of the agents!

Therefore, the net effect (of the clampdown) will be more hardships for ordinary folks and waning credibility of the RBZ. In any case, it is disconcerting that the RBZ is choosing to wage a war against a homegrown and successful business at a time when it should be working hard to show that it does not easily get overawed by insignificant events like the video that went viral.

Vindictiveness is the last thing that should drive policy!
Of course, the RBZ might get its way this time around, however, in the eyes of its peers or of those that might want to come and do business here, it will be seen as an organization that is out of control.

Nevertheless, as former RBZ governor Gideon Gono liked to say, there is still time for this current governor to ‘turnaround’ from this course and to start moving in a positive direction.

In the next piece, we examine some of the options that may be open to the ordinary person.


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