Shadow economy blamed for cash shortages Minister Patrick Chinamasa
Minister Patrick Chinamasa

Minister Patrick Chinamasa

Auxilia Katongomara, Chronicle Reporter
THE Government has said unscrupulous businesses and individuals operating a “shadow economy” are to blame for the ongoing cash shortages.

The Minister of Finance and Economic Development Cde Patrick Chinamasa said this in a written response to Senators that was read on his behalf in the Senate by the Minister of Agriculture, Mechanisation and Irrigation Development Dr Joseph Made.

The Minister said money amounting to around $760 million, $140 million of bond notes, $23 million bond coins and an estimated $600 million of multiple currencies was in the national economy, but hoarding of cash was causing problems.

“The practice by some traders, including foreigners operating within the Reserved Sectors of the economy, to operate without banking accounts is unethical business practice that should not be tolerated in this country. Non-banking of cash by such unscrupulous traders has a haemorrhaging effect on the circulation of money in the economy,” said Cde Chinamasa.

“It is the traders and individuals who are operating in the shadow economy that are therefore exacerbating cash shortages whilst at the same time externalising cash and also feeding the parallel markets. They do not pay taxes as well. They are abusing the privilege of operating in the Reserved Sectors of the economy.”

He said the country also needs to deal holistically with the challenge of low production and productivity, fiscal deficit, current account deficit and market indiscipline.

“As I advised this House before, money like blood needs to circulate for any economy to survive and grow. If money that is in the national economy amounting to around $760 million (11.7 percent of total deposits), made up of $140 million of bond notes, $23 million bond coins and an estimated $600 million of multiple currencies, was circulating efficiently, there would be no cash shortages in the country — a range of 10-15 percent of deposits in an economy is the best practice for cash in circulation in most economies throughout the world including developed countries,” said the Minister.

Cde Chinamasa said the Government through the Reserve Bank continues to support efforts aimed at promoting electronic payment transactions in the economy.

He said the efforts have resulted in the increase in Point of Sale (POS) machines from 16 000 in January 2016 to 40 600 currently. The Minister said electronic and plastic money transactions have since increased from around 40 percent in 2016 to the current average of 80 percent in the formal market.

“In addition to POS machines, the Reserve Bank is also promoting the use of other electronic means of payment available to the transacting public for use in the economy such as real gross settlement (RTGS), electronic funds transfer (EFT), mobile financial services, Near field Communication (NFC) and quick response (QR) code,” said the Minister.

He said the Government through the 2017 National Budget, scrapped import duty on POS devices and will in due course remove the five percent tax per transaction on POS and electronic payments. Cde Chinamasa said he hopes that the measures will capacitate financial institutions to import more POS machines.

On the use of the South African rand, he said: “it is very clear Mr president that the rand will have to function as a multi-currency designated in the same basket; not as an exclusive currency.” — AuxiliaK

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