RBZ dangles lucrative US$ denominated investment instrument

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By Alois Vinga

THE Reserve Bank of Zimbabwe (RBZ) has launched a US$ denominated investment instrument aimed towards promoting a reasonable return on FCA Nostro account deposits.

The facility was announced by the apex bank through its Monetary Policy Statement (MPS) released Friday.

In his fresh policy measures, central bank governor John Mangudya introduced a US$ denominated savings bond which carry an interest rate of 7.5 % per year; minimum tenure of one year; tax exemption in line with government policy; liquid asset status; tradable; and acceptable as collateral for overnight accommodation by the RBZ.

The instrument also aims to encourage individuals and firms holding US$ cash to invest their money through the formal system.

Mangudya also said the interest rate on the Zim-dollar savings Bonds shall soon be reviewed to take account of developments on the domestic Treasury Bill market and to motivate banks to provide meaningful return on local currency deposits.

However, assessing the investment instrument, renowned economist Dr Prosper Chitambara argued the move signifies government’s partial reversal of its earlier decision to abandon foreign currency.

“Savings bonds are by nature a debt instrument which is sold to potential investors. Such mechanisms are very important and widely used to mobilise capital the world over however.

“In our case, what this simply means is that the economy has been partially redollarised, confirming initial warnings given to government that it is very difficult to completely abandon US$,” he said.

Chitambara said the acceptance of the US$ savings was a clear sign that the central bank has partly reversed its decision to ban the use of foreign currency transactions in Zimbabwe arguing that this move is a form of transaction which leaves the economy partially dollarised.

“So this is an attempt to dangle a carrot in front of locals who are believed to be in possession of US$ and lure them to offer such money for investment. However, the interest rate of 7.5% being offered is quite little considering that inflation is spiralling at over 175%,” he said.

He said while the instrument appears to be lucrative, there was need to implement additional policies if results are to be realised.

The development comes at a time when the business community in the country is silently rejecting the local currency and insist on parallel market exchange rated prices whereas the informal sector which controls over 90 % of the economy is openly demanding US$ when carrying out transactions.