RBZ tightens cash movement

Business Reporters
The Reserve Bank of Zimbabwe has introduced a cocktail of measures set to ameliorate liquidity problems bedevilling the economy.
With effect from today, individuals will only be allowed to take outside Zimbabwe maximum cash amount of $5 000 per exit from $10 000.
Zimbabwe is grappling with a liquidity crunch resulting from low foreign direct investment, subdued exports and the country’s inability to attract lines of credit from bilateral and multilateral financial institutions. This has constrained economic recovery and industrial production.

While the central bank stressed the move to limit cash leaving the country was meant to comply with international money laundering measures, this would also significantly reduce the amount of cash exiting the country.

Other bigger economies such as China, India, South Africa and Angola allow lesser amounts of money to leave their countries.
In his maiden monetary policy statement issued yesterday, Reserve Bank governor Dr John Mangudya also announced measures on dealing with external bank balances and overdue export receipts.

The RBZ has also cut to 5 percent the total amount of foreign currency balances banks are allowed to hold in foreign jurisdictions as well as domestic banks accounts. Previously, banks could hold 30 percent FCA balances in Nostro accounts, excluding balances in domestic FCAs.

“To sustain the gains achieved by the policy on improving market liquidity and to simplify the method of calculating the compliance threshold, with immediate effect, the maximum Nostro Account compliance threshold shall be reviewed from the current 30 percent of FCA balances excluding domestic FCAs to a simplified threshold of 5 percent of total FCA balances,” said Dr Mangudya.

“It should be noted that keeping large balances in Nostro Accounts is tantamount to providing liquidity to those offshore jurisdictions where accounts for Authorised Dealers are domiciled. The boosting of liquidity in those countries is at the expense of Zimbabwe’s liquidity situation”.

As at 30 June 2014, total FCA balances excluding domestic FCA balances held with Authorised Dealers amounted to $1,7 billion, of which $276,6 million were balances held in Nostro Accounts, representing an average of 16,5 percent or 5,7 percent of total bank deposits of $4,8 billion.

Dr Mangudya said the huge balances showed that the historical bank holdings in Nostro accounts have been more than sufficient to meet Authorised Dealers’ international payment obligations.

Authorised Dealers shall continue to be allowed the normal 48-hour adjustment period in the event account movements result in them exceeding the maximum threshold.

To prevent banks holding to huge quantities of idle funds in cash form, the central bank said financial institutions would not be allowed to keep in excess of 16 percent of their FCA balances in cash.

The central bank also introduced measures to deal with outstanding export receipts, with those perceived to be unrecoverable set to be given amnesty, but those still recoverable shall be repatriated within ninety days.