RBZ payment of debts welcome

HARARE - The recent move by the Reserve Bank of Zimbabwe (RBZ) to start making payments of the over $1,2 billion debt it owes to creditors is a welcome development in the economy.

This will not only bring confidence in the country’s fragile banking sector but will also help in attracting investors into the economy.

Investors, the world over prefer an investment destination with a strong financial services sector and where the central bank is adequately capitalised to play its lender of last resort role. 

We, therefore, applaud government for taking the initiative to assume responsibility for the decade-old debts that the apex bank accumulated from many individuals and corporates at the height of the economic meltdown. 

However, government must step up its efforts and move quickly to recapitalise the central bank to ensure the smooth flow of operations in the banking industry.

Currently, due to lack of resources, the central bank has been unable to conduct on-site inspection of banking institutions, resulting in acts of delinquency going unnoticed only to emerge after the banks become insolvent.

The central bank has also been unable to undertake open market operations because the institution is not adequately capitalised and has not been supported by central government, itself grappling with a liquidity crunch.

Open market operations refer to the central bank buying or selling government bonds on the open market in order to expand or contract the amount of money in the banking system.

Open market operations are therefore one of the primary means of implementing monetary policy. Normally, these instruments are also used by banks as collateral for interbank lending.

It is a public secret that at the moment, the interbank market is dead because of the central bank’s inability to play its other crucial role of lender of last resort — providing the economy with funds when commercial banks cannot cover supply shortages.

We fully believe that an adequately capitalised Reserve Bank will help in boosting circulation of the money in the system, and alleviate the liquidity challenges in order to promote the proper functioning of the economy and the stability of the financial markets.

Currently, the RBZ does not have the capacity to create the necessary instruments to cover the banks with surplus cash so that they can lend to other banks experiencing deficits without risking their own depositors’ funds.

Comments (3)

If this is truthfully happening then maybe the Government itself will start paying off its numerous domestic debts particularly huge amounts owed by ZRP

homesure - 22 August 2014

If this is truthfully happening then maybe the Government itself will start paying off its numerous domestic debts particularly huge amounts owed by ZRP

homesure - 22 August 2014

surely if the things start to show up this way, then by 2016 we will be singing another hym

tonde - 12 September 2014

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