In interviews with Standardbusiness, bankers — who could not be named for professional reasons — were unanimous that government is not serious about its reforms of RBZ as it has taken a long time for the bank to perform its lender-of-last-resort role.
RBZ last performed that role in 2008.
While Finance minister, Tendai Biti, pushed through Parliament amendments allowing the bank to concentrate on its core business, analysts say the critical role of RBZ’s involvement in the event of short-term liquidity mismatches in the market has not been given the attention it deserves.
If the bank was playing its role, banks would trade on the inter-bank market, knowing that in the event of normal settlement challenges, they could seek accommodation from the central bank.
Treasury recently gave RBZ US$23 million, making it a pool of US$30 million which analysts say is inadequate.
Treasury also announced plans to privatise the lender of last resort role by creating a special purpose vehicle whereby government and its cooperating partners would inject funds.
“We need a functional interbank market where instruments are traded and RBZ is a participant but at the moment, the central bank cannot participate because it does not have the money,” a banker said on Thursday.
“Very few banks are trading with each other and a bank has to fend for itself if involved in problems,” he said.
Through open market operations, the central bank buys and sells government securities to manage liquidity.
If the market faces challenges, the central bank buys securities to inject liquidity. If there is excess liquidity, the bank mops that out through selling the securities.
According to an investment banker, central banks in Europe have been able to intervene in the Euro crisis by using or adjusting their monetary policies through introducing austerity measures as and when needed.
An austerity measure is an official action taken by governments through central banks in order to reduce the amount of money that it spends or the amount that people spend. This ultimately has an effect on the liquidity position of a country’s financial markets.
Without an ability to control a country’s monetary policy and implement it, analysts said, you are ineffective in introducing austerity measures when needed.
“So although the ongoing reforms are good, they will be slow and painful for the country because of the lack of our ability to have an effective monetary policy.
“Dollarisation without strong liquidity support is a painful pill and cannot be sustained for too long,” the investment banker said.
In a dollarised environment, RBZ is incapable of doing its job because it has lost its ability to print money. This means that it cannot influence money supply.
RBZ recently instructed banks to bring 75% of the Foreign Currency Accounts balances held in foreign banks onshore to ease the liquidity constraints but analysts say in the absence of short-term instruments such as treasury bills, that money is not evenly distributed.
“Money has come in but you have no instruments. The role of monetary policy is to distribute the funds and because it is not doing that, liquidity is not in the hands of the economy.”
RBZ boss, Gideon Gono, is set to issue instruments against the amounts owed to banks (US$83,58 million) in statutory reserves. The instruments will have tenors of two, three and four years with interest rates of 2,5%, 3% and 3,5% respectively.
RBZ scrapped statutory reserves — the amount of money any bank has to maintain with the central bank at zero percent for every deposit received from a customer — in June 2010.
“It’s just a certificate and whom do you sell to? If interbank market is not workin who would buy the paper of so and so?” an executive asked.
Investigations by Standardbusiness show that banks had proposed to create a window to support the revival of the lender of last resort, which was going to create not only paper for statutory reserves but more instruments that would allow movement of funds among banks.
“With the laid-back approach by government, the proposal will gather dust in one of the offices,” a bank executive said.
Multi-currency environment limits RBZ ROLE
Observers say in a multi-currency environment, the central bank’s functionality is going to be limited.
“Determining a monetary policy and implementing it is at the core of any central bank and for as long as we don’t have a local currency, RBZ will always have limited impact in the smooth operations of financial markets in Zimbabwe,” an investment banker said.
“The best RBZ can do now is being a regulator of our local financial markets, but a regulator without ability to introduce relevant instruments to ensure smooth operations of our financial markets in case they are needed is weak. And only through a monetary policy are you able to intervene effectively.”