Zimbabwe’s apex bank, the Reserve Bank of Zimbabwe (RBZ) in consultation with the Deposit Protection Board is exploring mechanisms to protect foreign currency deposits to enhance financial intermediation for the benefit of the economy.
The Deposit Protection Corporation (DPC) is wing set up by the government to protect the money deposited into banks account in the case that the bank goes bankrupt. Its primary objective is to protect depositors against the loss of their insured deposits when put into a member institution or bank.
However, there were no assurances that USD deposits could be compensated under DPC in the event that the bank goes bankrupt since there are no provisions set for NOSTRO/USD accounts.
In a statement of the meeting held by the Monetary Policy Committee (MPC) of the RBZ met, the bank announced that it working to protect USD deposits via the DPC.
“The Bank, in consultation with the Deposit Protection Board, is exploring mechanisms to protect foreign currency deposits. Consultations are also ongoing to encourage banks to leverage on the foreign currency deposits to enhance financial intermediation for the benefit of the economy,” reads the statement.
The bank in tandem with the Bankers Association of Zimbabwe recently made a stride through Statutory Instrument 65 of 2020 directing banks to pay interest on savings accounts and fixed deposits effective July 1, 2021. The directive was issued to promote financial intermediation and to stimulate production.
However, financial analysts believes that depositors had lost trust in the banking system and there is need for banks to work towards getting the trust of the depositors so that they deposit their USDs.
“Protecting foreign currency deposits via the DPC is a development in building comfort, safety and confidence for new and existing capital. This will put paid the legacy foreign currency issues,” said Langton Mabhanga of the Pan African Chamber of Commerce.
He added that this development will enable ring fencing of foreign currency while making it available for repatriation in the case of paying shareholders’ dividends or recouping of capital by principals of Foreign Direct Investment (FDI).
“This will be a major reform that further positions Zimbabwe as the preferred investment market and destination. We also hope that the monetary authority will avail incentives to make the Deposit Protection Corporation the option of choice. With more technological and product innovation, the DPC will advance to become a regional hub,” he said.
During the MPC meeting, the bank made new resolutions to the Monetary Policy to support the envisaged robust economic growth for 2021 and beyond.
Among the resolutions is maintaining the Bank policy rate at 40% and the interest rate on the Medium Term Accommodation Facility at 30% per annum, further tightening monetary policy by reducing the reserve money growth target from 22.5% per quarter to 20% per quarter going forward, while continuing to review the reserve money growth target to achieve and maintain stability of inflation and the exchange rate in line with developments in other macroeconomic fundamentals; and streamlining the Foreign Currency Auction System to reflect macroeconomic fundamentals and ensuring that the country’s productive sector is given priority in terms of allotment.
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