Private Savings and Liquidity Preference: Survey of Zimbabwean Households

Abstract

Since the 2009 introduction of the multiple currency monetary system and the then formation of a Coalition Government, macroeconomic stability has existed in Zimbabwe. The hyperinflation and perpetually declining real national income were harnessed. The economy has experienced significant growth and remarkably low inflation rates. An unwelcome consequence of the current monetary system in the country has been the inability of the authorities to print money or mint coins and rendering the Reserve Bank of Zimbabwe almost obsolete. With increasing economic activity, business and employment, there has been a general rise in the demand for money. This has outstripped the current money balances in the economy. Liquidity challenges have become the norm in the economy since 2009. Savings are therefore generally low and significantly low compared to regional trends. The primary objective of the study is to record the trends and ascertain the determinants of household savings and the drivers of enhanced liquidity preference in Zimbabwe. The study employed a survey of 315 households in Harare and Bulawayo: the two largest metropolitan cities in Zimbabwe. Using the data gathered, an econometric binary logistic model was estimated. The results showed strong correlation between household savings and bank-specific trends such as the rate of debit and credit card use and demographic factors like the ages of depositors. The study also provided conclusions and both micro and macroeconomic policy recommendations to mitigate the problem.

DOI: 10.5901/mjss.2014.v5n10p119