‘Consider Time Bank proposal on demonetisation’

Christopher Tande on the introduction of the fourth money as a way of funding measures pronounced in both the mid-term fiscal and monetary policy review statements presented recently.
In his fiscal policy statement, Finance Minister Tendai Biti said Government in previous budgets acknowledged the need to demonetise the Zimbabwe dollar balances in bank accounts and outside the banking system, upon availability of resources.
In this regard he said it was estimated that the demonetisation exercise would cost about US$6 million.
He said this amount would need to be provided for through the Budget.
“A committee comprising officials from Government and the Bankers’ Association of Zimbabwe is currently working on the requisite details and modalities to operationalise the process,” he said.
Economist Mr Rutendo Rutendo said while the minister admitted that there was need to demonetise he was also clear that the money is not available, a factor that makes the Time Bank proposal relevant.
“The Time Bank proposal essentially proposes the raising of US$5 billion through the introduction of the fourth money for two critical purposes that is funding civil servants salaries and demonitasation.
“In my view the proposal is a way around the minister’s headache on where to source the money,” he said
He added that the Time Bank proposal was critical in that in identifying the need to demonitise, the bank was cognisant of the need to restore confidence in the banking sector.
“A lot of people lost their money after it was locked up in the banking system after the adoption of the multi-currency system. Time Bank is proposing that by demonitising people who lost their money will get some sense of relief and in turn this will rebuild confidence in the banking system.
“According to the proposal once confidence is restored, there is a likelihood that money will start following into the banking system from the informal system which is largely unbanked,” he said.
In the same vein, Mr Rutendo said the Time Bank proposal was also critical in stimulating interbank activity as proposed by Reserve Bank Governor Gideon Gono.
“For this facility to work banks will need to co-operate and lend its other money as the US$5 billion will not be made available at once but overtime and this will definitely trigger inter-bank activity,” he said.
The proposal by Time Bank is premised on the fact that Government approaches banks to raise the US$5 billion with Time Bank as the lead bank after creating the fourth money (near money), which is part of the proposed M4 category of money.
This will be an additional category to the three that are in existence in the country at the moment, the M1 (liquid money comprising notes, coins plus all demand deposits and M2 (comprising all the elements in M1 plus all other short-term and medium-term deposits with banks with a tenor of less than 90 days.
There is also the M3 (combination of Ml, M2 plus all long-term deposits with banks with tenors less than six months).
The money will then be credited to civil servants’ accounts as and when it becomes available at different banks with Government issuing Treasury bonds, which have a long-term tenure to secure the loans.
To activate the process, according to Time Bank, the civil servants or the Zimbabwe dollar depositors would be required to open a time deposit account with any of the participating banks.
In terms of repayments the proposal suggests that Government would set up a sinking fund with Time Bank where deposits will be made into the account over a 10-year period in preparation for settlement of the 10-year Treasury bills/ bonds.
The fund will earn interest of 5 percent per annum and can be used to redeem TBs should a holder opt for early payment.