The most important role of the RBZ is to formulate and implement monetary policies. The objective of which is to maintain domestic money supply at levels consistent with the increase in the overall economic productivity under conditions of low inflation. The RBZ also acts as the sole issuer of bank notes and coins. The level of notes and coins issued by the Reserve Bank in circulation is determined largely by the cash demands of the economy.
The central Bank is also the custodian of gold and other foreign assets. Up until 1994, the Reserve Bank as a Government agent, held the bulk of the country's gold and foreign assets with authorised dealers i.e., commercial and merchant banks retaining small amounts as working balances.
As part of the overall macro-economic reform programme since 1991, Exchange Controls have gradually been liberalised with authorised dealers having assumed the role of custodian of the country's foreign exchange resources since 1994.
The Reserve Bank is also the banker and advisor to the government. It performs various normal banking services such as handling accounts of government departments, making short-term advances to government. In addition to providing banking facilities for the government, the Bank also accepts deposits from banking institutions. The central bank also acts as lender of last resort to the banking institutions to ensure that liquidity is readily available for the smooth operation of the banking system.
More RBZ roles include but are not limited to the following:
- Implements monetary policy
- Determines interest rates
- Controls the nations entire money supply
- Regulates and supervise the banking industry
- Sets the official interest rate used to manage both inflation and the country’s exchange rate
Capital Requirements as stipulated by the Reserve Bank of Zimbabwe
|Segment||Type of Institution||Current||2020||Activities|
|Tier I||Large indigenous commercial banks and all foreign banks||US$ 25 Million||US$ 100 Million||Core Banking Activities plus additional services such as mortgage lending, leasing and hire purchase|
|Tier II||Commercial banks, Merchant banks, Building Societies, Development Banks, Finance and Discount Houses||US$ 25 Million||US$ 25 Million||Core Banking Activities only|
|Tier III||Deposit taking Microfinance banks||US$ 5 Million||US$ 7.5 Million||Deposit taking Microfinance activities|
The main reason why banking institutions need to be capitalized by shareholders are as follows:-
- To finance start up costs – i.e. purchasing of equipment, establishing branch network, setting up IT systems, ATMs etc.
- Operational capacity – i.e. to carry out the business of lending funds to a diversified client base
- To limit systematic distress
Capital acts as a buffer against unidentified losses which may incur in future as they transact business with clients and other banking institutions. Since banks service the need of depositors and lenders, it is imperative that Banks have sufficient capital of their own which gives the sufficient cushion when transactions within the Banks take place (i.e. withdrawals of deposits and lending funds to third parties). Naturally, the higher the capital a Bank, the better the cushion, and in the public eye, it is a safe and more robust institution which inspires more confidence. Banks always look for offshore lines of credit which enable them to finance various trade transactions. To qualify for lines of credit from a Correspondent Banks, a Bank needs to be adequately capitalized. Banks with large capital bases in US dollar terms will always obtain more offshore facilities and higher lines of credit with favourable pricing (i.e. cost of borrowing.) It goes without saying therefore that a Bank which is well capitalized will always have the following characteristics.
- It will offer more products – local and offshore
- It will price its products competitively
- It will finance a large number of diverse transactions across sectors
- It will offer longer repayment periods
- It will be more efficient since it will have the state of the art equipment
- It will have a wider reach internationally –many correspondents in different countries
- It will have a wider branch network
- It will attract the best employees/well remunerated/motivated/efficient
- It will have strong corporate governance ethics – corporate social responsibility, pay taxes, avoid unfair trading practices etc.