By Alois Vinga
The Reserve Bank of Zimbabwe (RBZ) has mopped up a total $1,31 billion excess cash through Negotiable Certificates of Deposit (NCD) in a development that it claims will go a long way in strengthening exchange rate stability.
Latest statistics from the central bank show that there was a significant increase in the liquidity mopped up within a month’s period.
“Negotiable certificates of deposits (NCDs) also increased from $1,87 billion in August 2021 to $3,19 billion in the month under review. Partially offsetting the increases, were declines of $0,38 billion and $0,67 billion in currency in circulation and time deposits, respectively,” bank said.
In banking terms, NCDs are a marketable receipt for funds deposited in a bank for a specified period at a specified rate of interest.
The owner of the NCD at the time of its maturity receives both principal and interest, while its readily salable feature enables the original purchaser to retrieve his funds before maturity by selling the instrument to another holder.
Speaking to NewZimbabwe.com Business on the latest development, economist Persistence Gwanyanya hailed the instruments describing them as a two-way strategy to reward excess cash holders with interest while stabilizing exchange rates.
He said the NCDs in operation are varying in tenure from 30 to 90 days period as banks holding deposits that are above their set thresholds agree to transfer such surplus balances to the RBZ underscoring that the move is aimed at preventing such surplus balances from destabilizing the markets.
“Before this policy measure, some banks would take advantage of such monies and lend to their clients who would in turn flood the RBZ auction platform in pursuit of the US$ for speculative reasons. Such beneficiaries would also scavenge for foreign currency on the parallel market and in the process, contributed significantly by destabilising the market,” he said.
The top economist warned that leaving banks with such excess liquidity therefore prompts problems in the market hence these NCDs will go a long way to preserve exchange rate stability.
“The measure deals with excess liquidity at the bank’s level and if there is justifiable need to use the withheld balances, the banks are still allowed to approach the regulator for access to the money.
“The policy directive, coupled with other measures awarding interest to customers wishing to invest their money in the long term are all aimed at maintaining a balance in dealing with excessive money growth,” added Gwanyanya.