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Golden Sibanda
Local banks will now be required to notify the Reserve Bank of Zimbabwe (RBZ) first before processing “large” transactions for their customers, as the monetary authorities intensify efforts to stabilise the exchange rate and contain runaway inflation.
This comes amid revelations that 200 corporates own more than 50 percent of the $34,5 billion bank deposits while each may hold between $2 million and $1,8 billion.
The RBZ argues it will create corporate bills to mop up this “troublesome” liquidity.
The new apex bank requirement follows the realisation that while the RBZ is mandated to monitor banks’ activities, it was only getting to know of some high value transactions long after they were completed.
Some of the high value transfers related to funds that ended up being used to buy foreign currency on the parallel market, resulting in exchange rate volatility, which has been blamed for driving inflation.
A senior executive with the central bank, who declined to be named, said monetary authorities were facing challenges containing large money movements that had destabilising effect on the exchange rate despite being empowered to forestall questionable transactions likely to cause market instability. RBZ governor Dr John Mangudya, confirmed this on Wednesday although he said it was a standing rule where banks were required to fulfil under the know your customer (KYC) principle.
However, the central bank chief would not say what amount qualifies as large or high value transaction, but previously these were found to run into millions of Zimbabwe dollars with the effect of pushing up the exchange rate.
“That is a standing instruction, which banks have to abide by under the KYC (know your customer) rule that all large and suspicious
transactions will be reported to the Financial Intelligence Unit (FIU). Under standard practice FIU must report all suspicious and large transactions.
“Going forward, FIU will be monitoring all large transactions to ensure banks abide by best practices,” Dr Mangudya said this following announcement of measures to stabilise the exchange rate and inflation.
This comes amid growing questions on why the central bank, charged with policing the financial services sector, appeared to be failing to thwart the high value transactions that end up causing exchange rate volatility before they happened.
The large volumes of money are used to attack and destabilise the local currency.
In the past, including in January this year, the central bank has had to freeze bank accounts of corporates accused of releasing millions of dollars onto the market for purposes buying foreign currency.
Zimbabwe has witnessed exponential rise in inflation since September 2018 after embarking on currency reforms that started with an RBZ order for separation of RTGS and foreign currency accounts. The inflation rate rose from 5,39 percent in September to 175,6 percent by June 2019.
It is against this background that Finance and Economic Development Minister Mthuli Ncube, announced a cocktail of measures Treasury and the central bank will be implementing to stabilise the exchange rate and inflation.
“Government is cognisant of the fact that unrestrained increases in money supply are one of the fundamental causes of inflation and the depreciation of the exchange rate. Indeed, hyperinflation prior to 2009 was caused precisely by this factor,” Minister Ncube said.
The measures entail setting up a currency stabilisation taskforce spearheaded by the Ministry of Finance and Economic Development together with the Reserve Bank of Zimbabwe, Minister Ncube told bankers and journalists on Wednesday.
The taskforce, chaired by Minister Ncube, will meet at least once a week to review the conditions in the markets, monitor the behaviour of key variables such as exchange rate and inflation while ensuring outlined measures are implemented.
Part of the measures will also include introducing an electronic forex trading platform based on the Reuters Trading System to allow foreign exchange to be traded freely and permit a true market system.
Bureaux de Change will also participate on the platform as market takers with the trading rules for these players set to be liberalized to allow these entities to conduct a wider range of transactions.
Meanwhile, Minister Ncube said the law enforcement regime was not as effective as it should be with regard to exchange and financial fraud while the legal and institutional framework relating to curbing of parallel market activities was in adequate.
“Government will be reviewing all laws and institutional framework in order to bring them in line with international best practices and more importantly monitor the effectiveness of institutions charged with implementing the laws,” he said.
Online Reporter