Us humans are pretty simple to understand – we respond to incentives. This being something that those who govern us don’t want to grasp as this latest case involving Zimbabwe’s Nedbank branch shows. The government of Zimbabwe fixed the price of the locally issued currency as against the US dollar. That’s not a sensible thing to do in the first place, especially if you’re going to start manufacturing the local currency with gay abandon – as they obviously did. Governments respond to incentives too.
So, we’ve two things which aren’t worth the same – RTGS and USD – and yet government insists they are worth the same. What is going to happen here? Yep, there’s an incentive there and people are going to take it:
A massive scandal has rocked Nedbank Zimbabwe – a local unit of one of South Africa’s largest financial services groups – after 28 employees were nabbed by police for allegedly swindling the financial institution of over US$1,1 million through an elaborate scheme of swopping depositors’ US-dollar bank balances with electronic money (RTGS).
So, what were they doing?
Court documents read: “During the period extending from 15 October 2018 to 9 March 2019, the accused used (the)Denomination Exchange Platform in the Flexicube core banking system (under teller module), which is designed for exchange of similar currencies only, that is to say, they put in bond cash inflows and took out USD cash, thereby prejudicing the bank of foreign currency and as a result of the accused’s actions, the complainant suffered an actual prejudice of US$1 119 974 and nothing was recovered.”
RTGS wasn’t worth the same as the USD. The government says it was. On that rested the entire crime. It’s worth noting that when the government abolished the fixed exchange rate then the crime disappeared.
This is, of course, why government price fixing never does work. It always does produce such incentives, incentives produce such actions and thus the government insistence upon the fixed price is arbitraged away. Things end up being worth what they’re actually worth, always but always. All the government price fixing does is mean that crimes are committed along the way to what is going to happen anyway.