RBZ orders banks to surrender excess cash with immediate effect

The Reserve Bank of Zimbabwe (RBZ) has ordered all banks to surrender their excess cash or liquidity. For this, the banks will get Non-negotiable Certificates of Deposit (CDs) yielding no interest with effect from the 4th of June 2021.

RBZ shares what to do about retailers demanding cash, SI 127 of 2021, excess cash liquidity banks

 

What this essentially means is that banks are now being told to give up any extra money (above the prescribed thresholds) to the RBZ in exchange for Non-negotiable CDs which are commonly used by investors when they put money into an enterprise. The difference between NCDs (Negotiable Certificates of Deposit) and Non-negotiable CDs is that the latter cannot be traded, bought, transferred or exchanged.

At this point, we should mention that from what we have heard this is for local currency (ZWL$) not for USD. However, that doesn’t make it any better…

The RBZ wants free money

Now, this extremely unfair on the banks (and depositors) because they have to give up cash they would have made from depositors and other ventures to the RBZ for nothing. The RBZ wants to hold that money without any interest and this is made worse because the local currency is deteriorating even with the Forex Auction’s “official rate”.

As I am sure most of you are aware, on the parallel market the rate is leaps and bounds beyond the rate that is reported after the RBZ’s Auction, from what have heard it’s north of ZWL$135 for 1 US Dollar.

Is this something to do with SI 127 of 2021?

Statutory Instrument 127 of 2021 has had a detrimental effect on foreign currency availability in formal channels. What I mean by this is that with the rate now fixed at the Auction for all businesses, individuals are no longer buying at establishments with USD. The same can be said of the banks. People were already hesitant to deposit USD in banks save for putting money into a USD prepaid card for e-commerce purchases.

With USD dwindling in the formal sector, banks may have taken it upon themselves to buy up as much as they can because it is the currency that best holds its value. This is all speculation, but this new mandate from the RBZ might have been a measure to ensure that banks don’t gain an upper hand.

Trust, trust, trust….

One thing that we have harped on about in regard to the RBZ and the financial authorities is that they have lost the trust of the public. This move by the RBZ forcing banks to surrender excess cash does little to repair any trust that existed because some comments we have seen on social media have likened this to account raids.

Whatever the motivation, this is not a good look for the Reserve Bank…

You should also check out:

Yesterday marked a week since SI 127 of 2021 was instituted and to no one’s surprise the predictions offered from all corners of Zimbabwe were on the money. You can check out our conversation on what we observed below:

Post published in: Business

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