Foreign-owned banks in Zimbabwe, feeling the heat from the government's demand for compliance with the 51% indigenisation law, have been at the forefront of shielding the country from its worst cash crisis since it ditched the local unit, the Zimbabwean dollar, in February 2009.Industry players told Business Times this week of the real possibility of the country "running out of cash before December this year", as the liquidity situation showed no sign of improving.This raises the prospects of the country either adopting the Chinese yuan - so far shunned as a trading unit - to substitute the scarce US dollar, or using a single currency such as the rand given the close trade ties between Harare and Pretoria.However, the latter option is unfavourable given the rand's volatility, and political interests are more likely to trump economic considerations.Zimbabwe's rulers view the wholesale adoption of the rand as the official trading unit as equivalent to handing over the nation's sovereignty to its southern neighbour.The country would have to operate under the dictates of the monetary policies laid out by the South African Reserve Bank.Tendai Biti, former finance minister and now leader of the People's Democratic Party, said in an interview this week that the cash crunch was inevitably linked to the collapse of Zimbabwe's productive sector and its disastrous 51% indigenisation law - a deterrent to foreign investment.The indigenisation law requires all foreign-owned companies to sell a 51% stake to Zimbabweans.The irony, Biti said, had been lost on President Robert Mugabe's government: it has been hounding foreign banks - which are now acting as the last lifeline for the ravaged economy."There has been a misdiagnosis of the situation; it is not a cash crisis, but an entire country that does not have money. Companies are folding and de-industrialisation has accelerated. The import to export ratio is at a staggering 1 to 7, which means for every dollar we make, seven dollars more leave the country," he said.Biti said the use of any currency without the fundamentals of productivity being addressed would be a short-lived solution. "The South African Reserve Bank would be crazy to accept Zimbabwe into the rand monetary union given the disequilibrium in the country."Nobody wants to touch us," he said.Without its own currency, Zimbabwe has been making use of a multicurrency system for seven years.It chiefly trades in the US dollar, rand, British pound, euro and Botswana pula.Reserve Bank of Zimbabwe governor John Mangudya said the foreign-owned banks, alongside two locally-owned institutions, CBZ bank and FBC, had been importing cash, but were still unable to satisfy the high demand."There is excessive demand for cash. The banks are trying to ration and spread the money. The demand for cash is high right now," he said.The foreign-owned banks operating in Zimbabwe include MBCA Ltd, a unit of South Africa's Nedbank and Ecobank, in which Nedbank has a 20% stake; Stanbic, a unit of South Africa's Standard Bank; the British-owned banks Standard Chartered and Barclays; and the Central Africa Building Society, a unit of Old Mutual.In the first quarter of the year, $263-million (about R3.8-billion) - $118-million from the banks and $145-million from the government - was injected into the economy.Mangudya put the blame for the worsening crisis on the demand for cash fuelled by the concurrent payment of public servant's salaries and bonuses this month.In response to the high cash demand, banks have switched off ATMs, imposed daily withdrawal limits to $500 per client and the real-time Zim Switch service, which allows customers to access cash from banks other than their own, is offline.A banking executive at FBC explained that importing cash was an expensive exercise, as panic-stricken depositors opted to hold onto the money, fuelling the vicious cycle of shortages."If we import, we pay it out and the next thing it's not coming back through deposits. The situation is there is no money. We are actually managing through the deposits we have, hence the limits in ATM cash withdrawal limits," he said, speaking on condition of anonymity.The Zimbabwe Banks and Allied Workers Union said the cash crisis reflected the general lack of confidence people had in not only the financial services sector, but the entire economy."The crisis in confidence is not confined to them [banks], but in the manner in which the country and economy are moving. People are pessimistic about the future and prefer to hold on to cash," said Peter Mutasa, the union's secretary-general."The shortages also cannot be divorced from pronouncements from the indigenisation minister, Patrick Zhuwao, that companies which are noncompliant will face closure. N aturally there has been depositor flight in the market."In what is widely seen as a calculated move to calm the market, after this week's cabinet meeting on Tuesday, Mugabe announced that his administration was prepared to "forthwith" amend the 51% indigenisation law.The policy clarification, Mugabe said, was "essential for the promotion of financial sector stability, confidence and financial inclusion".Mugabe said foreign banks would be allowed to retain control of their units, but there would be an expectation that they would increase funding to "key economic sectors and projects".rayzr21@gmail.com..