BANKS have redeemed Zimbabwe dollar treasury bills from the Reserve Bank as it became apparent that the local unit has lost relevance as a medium of trade following the dollarisation of the economy.
Last week most banks cashed in the financial instruments disregarding the central bank as the lender of last resort owing to the multi-currencying of the economy.
The lender of last resort protects individuals who have deposited funds and prevents panic withdrawals from banks which have temporary limited liquidity.
But due to multi-currencying of the economy, which has curtailed the central bankâ€™s role, commercial banks would need to rely on external sources of funds until other instruments of financial intermediation become more active.
Bankers Association president John Mangudya yesterday confirmed that banks were liquidating treasury bills and other instruments denominated in the local currency although he insisted that Zimbabwe dollar was still legal tender.
â€œMost institutions still need the Zimbabwe dollar to meet other obligations such as corporate tax for last year,â€ Mangudya said.
Asked how banks continue to survive on the back of subdued banking activity, the CBZ Bank boss said they were driven by the hope of economic recovery.
â€œThe future of the local currency is anchored on boosting production and refraining from unjustified price increases,â€ he said.
Multi-currencying of the economy has seen banks responding by formulating packages to attract scarce foreign exchange into the formal sector.
A survey by Businessdigest this week showed that banks were coming up with attractive interest rates for depositors in an effort to restore economic activity in the banking sector.
The RBZ has however said banks should â€œensure that most of their loan advances are biased towards the productive sector to reinvigorate the supply side of the economyâ€.
A treasury employee at Zimbabwe Allied Banking Group said the bank was now offering a 5% interest rate per annum for foreign currency invested on the money market while Kingdom Bank offered 0,42% for a minimum period of three months.
Apart from investments on the money market, banks are raising foreign currency inflows by levying bank charges for foreign currency accounts.
Analysts contend that the decision to allow the use of foreign currencies has virtually paralysed the local unit despite governmentâ€™s position of maintaining it as a legal tender.
Â â€œThe Zimbabwe dollar as a currency of national payment is no longer of major significance. It is impossible right now to restore its value. Confidence has been lost due to inflation,â€ said ZB Bank group economist Best Doroh.
Â â€œGovernment is speaking in contradictory tongues,â€ said economic expert Daniel Ndlela. â€œIt has dollarised the economy and I do not see why it talks of a domestic currency when local authorities and public utilities are charging in foreign exchange.â€
BY BERNARD MPOFU