RBZ orders banks to surrender excess cash with immediate effect

Valentine Muhamba Avatar

Valentine Muhamba

Samora Machel Avenue showing the Financial District

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.

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:

22 comments

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  1. Tate fx

    Hmmm..Maybe its month end and they need rent money …hahahaahsa

    Reply
  2. Anonymous

    RBZ, i give up.

    Reply
  3. Yanis Star

    I think its a traditional way of mopping up excess liquidity. If I may ask, why are banks holding on to excess liquidity instead of lending it out. Look at agriculture, other thank CBZ agri yield, which other bank is playing big in supporting agriculture. We blindly support banks when they charge us exorbitant transactions fees yet truth is that banks must make money more from credit and less on transactions fees. But have you seen the banks latest financials. If they don’t want to lend, then its good enough for RbZ to mop up the excess cash with NCDs. Why are the Treasurers crying over an age old market operation.

    Reply
    1. Always off topic

      I agree, those bankers who are crying are the ones who are diverting cash onto the streets. Instead of putting that money to work in the economy, they are hoarding it for nefarious purposes. I think RBZ has to be commended because for the first time they are putting pressure in the right place. This measure is better than threatening people with long prison sentences and having police abuse people in the streets.

      Reply
  4. MMN

    The RBZ is in need of liquidity, however, this is a bad move forcing the banks to give up their excess cash for nothing . It could be that the RBZ is trying to avert the crisis brought about the SI 127 of 2021 that could see the local currency further losing its value. Remember that there are certain banks that at one time were blamed of the escalating parallel market rate after flooding the Streets with ZWL, with the USD becoming inaccessible through the formal channels and uncertainties regarding the SI 127 of 2021 the history could repeat itself.

    Reply
  5. MMN

    Afterthought 1:
    The banks fear the loss of value of their assets should the rate pick up, this comes after the promulgation of IS 127 of 2021,with the RBZ failing to meet the alloted forex through it’s auction system and scarce FX on the formal channel, no one knows what position the banks can take.

    Reply
  6. DM

    Yes…they banks should get 0% interest because…they’re giving 0% interest on both savings and current accounts…
    In Zimbabwe if you deposit 1000usd in a bank account.. atcthe end of the year it’ll be 800usd

    Reply
  7. Anonymous

    Nothing amiss here, just the regulator doing it’s job. Too much liquidity can be toxic for the financial system just as is too much of anything.
    Under “normal circumstances” Banks have little to gain by maintaining excess reserves. This ZWL “nobody wants” may even lose value over time due to inflation. Thus, banks normally minimize their excess reserves, LENDING OUT the money to clients rather than HOLDING it in their vaults.
    After all these banks tell us they have no money for withdrawals and loans but are sitting on mountains of EXCESS RESERVES.
    Come to think of it, these bankers are smart ass’ more clever than laymen like myself. So why should they give out loans to “fools” like myself who may default, when they can arm foot soldiers on the streets and scoop some quick profit from arbitraging and speculating on the parallel market.

    Reply
  8. Anonymous

    Banks should dance to the tune. They are daylight robbers who rob depositors’ funds trough exorbitant transaction charges and 0 % interest on deposit. Why do banks want interest from rbz?

    Reply
  9. Anonymus

    Very fair. Banks never give interest on positive bank balances and want to give loans at high interest rates. We spend a lot of time in bank queues banks say there is no money yet they are sitting on excess reserves. RBZ is correct. Take the excess

    Reply
    1. tafadzwa

      The RBZ sucks

      Reply
  10. Anonymous

    The RBZ knows what it is doing. To start with where did the banks got that money fron. From depisitors obviously at a cost to the depositor. They are already paid.

    Reply
  11. faf

    Banks should dance to the tune. They are daylight robbers who rob depositors’ funds trough exorbitant transaction charges and 0 % interest on deposit. Why do banks want interest from rbz?

    https://maltanewsplus.com/2021/06/06/why-gta-5-is-so-much-better-than-cyberpunk-2077-readers-feature/

    Reply
  12. Suku

    Finally, someone got the banks. Bayazenzisa mnxii

    Reply
  13. Taonaziso Chowa

    The problem Alarmistic journalism

    Why not get the whole story and interview experts on the implications. Economic issues need thorough journalism not what we are reading here!

    Reply
  14. HM

    Who is the Reserve Bank? The individual banks or RBZ.? Whose cash or liquidity are we talking about? Isn’t it depositors funds? Depositors should be complaining not banks.
    I am quite angry with the RBZ. All this time they let banks keep this excess money? And do what with it? What statutory instruments give indvidual institutions and corporations the power to do whatever they want with people’s money?
    Banks are middle man in the cash cycle. Makoronyera. Thats what they are ;legally of course. Now they think the money is there’s. Mai Weee.

    Reply
  15. eddie

    I believe every move in the new dispensation is with utmost precision, where they feel control is required its always guided by thorough investigation and timing. This is no longer time to experiment with the economy.

    If banks don’t start pulling up and along with the strategies I’m sure that whip is close by.

    Reply
  16. Wezhira

    Banks should not be cry babies in this issue. We deposit our money and they keep it at no interest instead if you keep it longer in the bank you end up with nothing at all getting into negative. Kana chidembo chavakukwevewa choti mavara angu ozare vhu. Pamberi be RBZ.

    Reply
  17. Anonymous

    I would appreciate a satisfactory explanation from the RBZ on why it let banks keep excess liquidity and at the same time allowing banks to restrict cash withdrawal from individuals wanting to use their own money.

    Reply
  18. JET

    I would appreciate a satisfactory explanation from the RBZ on why it let banks keep excess liquidity and at the same time allowing banks to restrict cash withdrawal from individuals wanting to use their own money.

    Reply
  19. John

    The real issue is that collateral values, starting with farmland and spreading to other forms of security, have been wiped out or undermined so much that banks can no longer find many trustworthy borrowers. Most banks are no longer functioning as banks, they are just Money transfer agencies. We have 17 of them and need only four or five. But we need to rebuild collateral values. The economy was crippled when the collateral value of farmland was cancelled. This remains a severe disability, but it is a self-inflicted disability. It can be removed – just put land back onto the market!

    Reply
  20. Anonymous

    No sympathy for the banks
    They make huge post tax profits which is evident on all their new head offices under construction!

    Reply

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