So the story of the week has been the directive issued by the Financial Intelligence Unit of the Reserve Bank of Zimbabwe to EcoCash instructing them to freeze the accounts of agents that transact above ZW$100,000 (USD2,000 or USD4,000) per month.
Of course, EcoCash went to court to have the order urgently suspended. On Friday, the Reserve Bank of Zimbabwe submitted their opposition to the urgent application at the High Court of Zimbabwe. The papers filed by both parties show that gloves are off in this one. We already talked about how EcoCash accused the Financial Intelligence Unit of ignoring their reports on suspicious transactions submitted by the mobile money operator.
Currency manipulator at EcoCash
The opposing affidavit written by the governor of the RBZ makes a very serious and interesting claim. The governor mentions that EcoCash transactions fail to be effected immediately and this creates an opportunity for spinning money. Here is the interesting bit:
What the general public does not know is what happens in the interim. The funds that have not been credited to the vendor or the recipient are then available for trading on the Ecocash Platform in the foreign currency market. In effect, the delays allow a certain person, who was the subject matter of an investigation, to buy and sell foreign currency in the intervening period.
John Mangudya’s affidavit
Have there been delays on the EcoCash platform?
Definitely there have been delays on the EcoCash platform. There has never really been an explanation why such delays sometimes happen. The most affected transaction seems to be the wallet to bank transaction. Most times the money reflects in the receiving bank account immediately but on occasion this doesn’t happen.
The longest I have seen someone having to wait for their money to be reversed back into their wallet after a failed wallet to bank transaction has been 4 days. This is a very frustrating thing when it happens, calling the bank and calling EcoCash….
Three jars, two lids
Just because there are occasional delays in some transaction doesn’t prove the RBZ assertion. If indeed there is some entity within EcoCash that manipulates the system in order to use the funds caught up between sender and receiver to buy forex on the parallel market then there is a hole created.
Let’s call the mysterious entity Mr X. If I do a wallet to bank transaction of $100 and Mr X manipulates the system to delay my transaction and he takes the $100 to buy forex on the parallel market what happens? The EcoCash system will be left short of $100.
Eventually my money has to be restored and my transaction should be processed or reversed. That money has to come from somewhere else and perhaps that will be from another delayed transaction. However there will be fewer lids than there are jars. The situation worsens if Mr X keeps taking money out of the system to buy more forex.
The hole cannot be filled by Mr X’s black market enterprise being profitable. If Mr X trades with my $100 and increases it to $120 it doesn’t change anything because he can’t bring that money back into the EcoCash ecosystem as a replacement to my missing $100.
When he deposits that money, it is really just another deposit onto the platform which has to be honored in its own right. As such, that money cannot fill the hole created when my $100 was diverted.
There is only one way to fill the hole
The only way holes like these ones can be filled is by creating money out of thin air. Governments do this every time. This is why fiat currencies get the slack from crypto enthusiasts and the rest of them but that’s another story for another day.
Just to give perspective: From 2014 to 2018, the Zimbabwean government was digging this hole in USD terms because the country was using USD. The government was spending more than was coming in and there was no way of filling the gap because the RBZ cannot print USD notes. They did the next best thing: they printed fake USD currency, not even notes. They just started pumping make believe numbers into the system. Eventually the shortage of the notes became noticeable and they started printing bond notes until they gave up and then just declared that what we called USD yesterday is now called RTGS$ today and it became Zim Dollar (ZWL) tomorrow…
Is the RBZ accusing EcoCash of printing money? Can EcoCash do this? It’s hard to believe that EcoCash could pull this off under the nose of the RBZ. In fact if the RBZ makes this claim then effectively they indite themselves. If Ecocash has been printing money, it’s called counterfeiting and they should have been shut down, tried, convicted and jailed till kingdom come.
If Mr X is stealing and not printing money
If indeed the RBZ accusation is true and EcoCash is not printing money then it means Mr X is in a serious debt spiral- that hole cannot be filled! Is there evidence of this huge hole?
Mangudya says the hole exists
In his affidavit the Reserve Bank of Zimbabwe Governor says there are EcoCash agents that are overdrawn and EcoCash has failed to offer an explanation on why that is so. Oh yes, overdrawn agents are a smoking gun in EcoCash’s hand. It will be very interesting to hear what the financial services company says about that one.
The central bank boss says these agents are overdrawn by ZW$39 million. Using the current parallel market exchange rate this is USD800,000. This is not pocket change and needs to be explained. To be sure the money is above this USD figure given that this debt didn’t just happen right now whilst the exchange rate is where it is.
If Mr X exists what would I have done if I were him?
The only way I would think to close the hole is to keep the hole small at any given time and then to fill it with transaction fees. I would charge for transactions as normal and find a way to keep the money still on the EcoCash ecosystem. It would be a complex operation definitely but in theory it should work.
Why go through complexity though? Why wouldn’t I just not dig the hole at all and I just use my transaction fees to buy as much forex as I can? Why would I touch money on my platform, money that doesn’t belong to me and that will be difficult to replace without a currency printing machine that only a central bank can have?