Bank defends $5 Zimdollar compensation

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A LOCAL bank has said the $5 to be paid to depositors who lost their money when the country abandoned its local currency five years ago as part of the demonetisation of the Zimbabwe dollar is fair.
BancABC added that the swap itself sends a clear welcome signal the government is committed to continue using foreign currencies.
The country adopted a basket of currencies in 2009, mainly the United States dollar, the South African Rand and Botswana’s Pula, dumping its hyper-inflation ravaged local unit.
Central bank governor, John Mangudya on Wednesday announced in his monetary policy statement that government had set aside $20 million to compensate depositors who lost their savings and pensions by June 30.
In an analysis of the monetary policy statement issued on Wednesday by the central bank, BancABC noted that the United Nations exchange rate in 2008 was at Z$35 quadrillion for $1.
The local currency denominated money supply (M3) at the time was equivalent to US$ 6 million while foreign currency deposits were estimated at about US$300 million.
“The $5 per account payment may appear low, this is because the majority of the Z$ balances, particularly for public when converted at the then applicable UN exchange rate would not be worth much,” BancABC said.
“The payment of flat amount per account should administratively make demonetisation process easier. The process is meant to send a positive message that government has officially retired the Z$.”
Demonetisation of the local unit is also expected to help preserve the multiple currency system which will be maintained indefinitely.
“This will bring confidence in the economy as the general public are still haunted by rumours of a possible return of the local currency. This is further evidence that government is committed to the continued use of multicurrency,” BancABC said.
On the proposed measures to lower costs of access to banking services in order to make it accessible to the majority, BancABC said this will partly addresses the issue of financial inclusion.
A recent survey by Finscope shows that only about 26 percent of the population have access to banking services.
“This is also critical to attract the informal sector to use main stream banking channels. This policy supports deposit mobilisation and banks’ competitiveness given rise in usage of mobile money,” said the bank.Advertisement

It is estimated that over $7 billion is circulating outside the formal banking sector due to high bank charges, high security risks and a declining saving culture.
Commenting on the proposed wage and salary freeze, BancABC also noted that in the past these were not linked to productivity while in other instances, salary levels were premised on artificially high and unsustainable margins which prevailed at the inception of multicurrency.
“In order to correct this anomaly, austerity measures as proposed by government are critical. Although it will be a painful transition, the long-term benefits will be improved viability and competitiveness,” the bank noted.
BancABC said there was also need to address the asymmetric price transmission mechanism in the economy where price increases are quickly passed on to the consumer.