AS cash shortages hit Zimbabwe, the Reserve Bank of Zimbabwe in November 2016 started rolling out bond notes. While these have somewhat improved money supply, they have also come with pricing distortions. To get an insight into how the authorities are responding to this, The Sunday Mail Business Reporter Africa Moyo spoke to central bank Deputy Governor Dr Kupukile Mlambo at a RBZ/Confederation of Zimbabwe Retailers breakfast meeting in Harare last week.
Q: Despite the RBZ position that bond notes should trade at par with the US dollar, some retailers and foreign currency dealers are going against that. . .
A: What I can tell you is that in a situation where there are shortages, you are always going to create a market for rent-seekers. So, we now have a situation where people are just using the US dollar as a commodity, giving rates for it. Since we don’t have foreign currency exchange rules, we can’t determine the rate at which people exchange, but if it is done illegally, then there is an issue that we need to tackle ourselves.
Q: So what action are you taking?
A: Like I said to the retailers, if they are selling or pricing one commodity at three different prices, that is illegal; the law doesn’t allow it. But for buying of money, if it is in the black market, then there is an issue also.
But you can’t deal with all these things until the Bond Act has been enacted. It has been passed by Parliament; we are just waiting for the President to assent to the Bill. Once it’s operational, we can deal with those issues.
At the moment, it is difficult to deal with such issues because we don’t have a legal framework. Once the President signs the Bill, we will address that.
Q: There is a situation in the market where a US$100 bill is trading for 110 bond notes. . .
A: Yes, yes; even more. And that is why we have told banks, we are encouraging them not to bring US$100 notes. The thing with those denominations is that they are easy to externalise.
You know if we only had US$10 notes, it’s very difficult to externalise because if it is US$10 000 in US$10 notes, how do you carry it? It’s huge, but if it is US$100 notes, it’s very small and you put it in your pocket.
Q: So, it was a directive to banks by the RBZ?
A: No, no, it’s not a directive. We can’t force them but we encourage them. We don’t want to see them (US$100 bills) actually and we have discussed with the banks and they also agreed.
So no one is importing the US$100 note; if you see it, it’s maybe because someone went to the United States of America and came carrying them. But banks are not importing US$100, even US$50 notes.
Q: On another issue, Deposit Protection Corporation chief executive Mr John Chikura feels that challenges regards liquidation of failed banks could be overcome if the RBZ swiftly closes banks that exhibit signs of distress. How do you react to that?
A: He is simplifying the issue: it’s not that simple because the Banking Act has steps that you need to take before you close a bank. You can’t just close a bank.
You need the Minister (of Finance) to give you the permission.
First of all, when a bank is weak you give it a corrective order. When it fails to implement that corrective order, then you take them off (the corrective order). But if they continue not to implement it, then you have write to them that they stand to lose their licence.
But you yourself as central bank can’t take away the licence. You have to write to the minister; he is the one who takes away the licence, even though the RBZ is the one that issues licences.
The minister will then write the bank to say “give us cause why we should not do it”. So the whole thing takes long; it’s the law not the central bank.
Q: But is there no provision for the RBZ to amend the law to ensure a decision on withdrawal of banking licences is done swiftly to protect depositors?
A: That one we do take. Depositor funds are always protected, we also protect them but I think what we need to understand is that we are a very litigious society. If you just close down the bank, you get bogged down in courts.
The issue of Trust Bank, I don’t know how long it lasted in the courts because people here like going to the courts. So if you don’t do it by the law, you will be taken to court and it would take even longer.
That is why it is better to follow the steps and remember that we have a Constitutional Court, and you know what happened to the State Liabilities Act. The courts have said it’s not constitutional, you can attach Government property.