Business Reporter
The Reserve Bank of Zimbabwe will introduce non-negotiable certificates of deposit to re-direct idle funds to productive sectors of the economy.
This comes after the apex bank noted decreasing lending activities by banks, resulting in excess balances reflected in real time gross settlement positions.
Announcing measures to deal with cash shortages in the country RBZ governor Dr Mangudya said he had noted reduced lending activities by banks, leading to excess balances as reflected by high positions on RTGS.
“This is not consistent with the quest to grow the economy. Accordingly, the bank is working on a framework of introducing non-negotiable certificates of deposit so as to direct idle financial resources towards productive activities,” he said.
A non-negotiable certificate of deposit is an investment in a financial institution where the investor decides on the amount of money to invest, terms, and interest rates and is only redeemable by the account holder.
Once these factors are selected, investors then open a certificate of deposit account according to the agreement. Non-negotiable CDs cannot be transferred, sold, bought, or exchanged, except by the investor.
They are not a huge gamble for investors, but are a safer way of investing money until the investor needs it. Investors know that no matter what happens they will walk away with the principal amount they invested.
Announcing the measures to address cash shortage Dr Mangudya also said the lack of a savings culture has generally undermined growth of the economy, as excess funds could not be deployed to productive activities.
“The traditional savings culture where the banking public used to deposit money for a specific return has been eroded over the years, thereby undermining potential growth of the economy as excess funds could not be deployed to productive activities,” said the RBZ governor.
To that end, the central bank has directed all banks to open special savings product accounts with minimum balance of $10 000, 10 000 or R20 000 with minimum term structure of 6 months.
Further, banks are required to give compounded interest rate of 5 percent on US$ and euro account balances and 10 percent interest on rand. He said that the special savings accounts should be free of any taxes.
“In order to further promote financial inclusion, banks are urged to reduce maximum lending rates to 15 percent from 18 percent. Furthermore the RBZ has noted reduced lending activities by banks, leading to excess balances as reflected by high positions on Real Time Gross Settlement. This is not consistent with the quest to grow the economy,” he said.
In a bid to address cash challenges, the Reserve Bank of Zimbabwe is set to introduce bond notes to curb the flow of dollars from the country.
The bond notes will be backed by a $200 million African Export and Import Bank nostro-support facility, which will cushion banks on the high demand for cash when local companies want to make external payments.
Dr Mangudya said the facility is expected to provide an incentive of 5 percent to all foreign exchange earners, including tobacco and gold exports.
Gold producers who sell their gold to the RBZ and other exporters will get an extra 5 percent on the proceeds of their bullion sales or exports proceeds.
The money will be deposited into a US$ account through RTGS. As a control mechanism on how much incentive is due to qualifying foreign exchange earner, banks will get the RBZ information on qualifying account.
Dr Mangudya said RBZ would then give the banks the equivalent in bond notes, physically to fund the 5 percent export incentive, instead of the dollar, which is susceptible to flowing out, creating liquidity gaps in the economy.
When an individual now wants to purchase goods outside the country, they will then have their account debited and if the bank does not have dollars, they will redeem the bonds notes with the central bank and get dollars.
The central bank would then draw dollars from its Afreximbank facility, which will have justification to go out of the national circulation system in what Dr Mangudya said would be akin to replenishing his bond notes.
“This is a performance-based incentive scheme and is export driven. This will incentivise people to bring money back home rather than keeping it outside,” he said, as they earn more interest than what they can get externally.