Archive | June, 2015

What exactly is this animal called Demonetization in Zimbabwe?

30 Jun

After having learnt of inflation, deflation and what multi – currency is all about in the last few years, it is now time again for Zimbabweans to learn new economic and financial terminologies. This time we have the buzz word – demonetization in our midst. Last month, people were scurrying around trying to understand what this new animal was all about and what it meant. Others thought the dreaded Zimbabwe dollar was back and others were just of the view that they don’t keep money in the bank anyway so whatever it is, the chefs will sort themselves out there.

Anyway, since the 2014 National Budget and in the January 2015 RBZ monetary Statement there was mention and speculation that finally the Zimbabwe dollar would be demonetized. Thus the statement noted:

  Demonetization of the Zimbabwe Dollar
… The Reserve Bank shall be demonetizing the Z$ balances by 30 June 2015. It is envisaged that US$20 million shall be used for this purpose. All genuine or normal bank accounts, other than loan accounts, as at 31 December 2008 would be paid an equal flat amount of US$5 per account. The then prevailing United Nations (UN) exchange rate (1 USD$ to 35, 000 ZW$) would be used to convert Z$ balances that were as a result of arbitrage opportunities “burning” and for ZW$ cash to be received from the walk-in banking public.

The Monetary Statement noted that “the significance of this policy measure is to bring to finality to this long outstanding Government obligation to the banking public and to formally pronounce the demise of the local currency”.

Fair and fine, this was long outstanding and causing anxiety in the Zimbabwean public with threats here and there from the ZANU PF government to bring back the Zimbabwe dollar. Since 15 June 2015, we now know the Zimbabwe dollar was stripped of its value and is no longer legal tender, questions still ring as to how this will pen out. Who and how will Zimbabweans be compensated and benefit from this new policy?

What is being referred to as a genuine bank account? The proposal from the RBZ Governor clearly spells out the problem being dealt with by alluding to the “normal or genuine” bank accounts. Questions that arise will of course relate to what the RBZ is defining as a “genuine or normal” account.
– USD $5 flat rate to every account holder: The RBZ proposes a USD$5 flat amount to each and every “genuine or normal” account holder. How this figure was reached, what formula was used and what consultations took place to get to this determination?
Where is this USD $20 million coming from? Initial projections by the then RBZ Governor, Gideon Gono had placed the amount at USD$6 million. Is this money coming from the Consolidated Revenue Fund; is it money that was held from the Deposit Corporation Fund or has been donated to Zimbabwe by external funders? These questions are critical in the sense that Zimbabweans need to know if they are not being made to compensate themselves through their taxes for wrongs committed by corporate bodies and the government.
Banks will have the last laugh all the way to their bank accounts: Chances are highly likely that if paid into a bank account the money will be swallowed through bank charges. This has the negative effect of becoming a token form of compensation which will inadvertently “inject” huge sums into the private banking corporations. Is this a Marshall Plan of some sort to inject money into the system? For example, a banking institution with a half a million customers has the potential to rake in almost half a million dollars in bank charges after this process is finalized.
– Closed banks: A number of banks have closed shop and some are under judicial management. How will the payments be made to the customers of those banks?
– Public media engagement: This process will end on 30 September 2015. What is the public media engagement strategy which will be used by the RBZ to inform all concerned citizens of this development?
– Public Consultation? Lastly, with all these questions in mind, it becomes important to even question the legality of this proposed policy. The policy looks very top down and detached from the realities that Zimbabweans need to be consulted to reach a more beneficial position which could even see the money being channeled to other projects which could indirectly compensate the victims. Was this policy ever subjected to any Parliamentary discussion/vetting?
Just asking?

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