The Role of RBZ
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 authorized dealers i.e., commercial and merchant banks retaining small amounts
as working balances.
As part of the overall macro-economic reform programmed since 1991, Exchange Controls have gradually been liberalized with authorized 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 |
Tier I |
Large indigenous commercial
banks and all foreign banks |
US$25 Million |
US$100 Million |
Tier II |
Commercial banks, Merchant
banks, Building Societies, Development Banks, Finance and Discount Houses |
US$25 Million |
US$25 Million |
Tier III |
Deposit taking Microfinance
banks |
US$5 Million |
US$7.5 Million |
· 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 favorable pricing (i.e.
cost of borrowing.) It goes without saying therefore that a Bank which is well
capitalized will always have the following characteristics.
1.
It will offer more products – local and offshore
2.
It will price its products competitively
3.
It will finance a large number of diverse transactions across
sectors
4.
It will offer longer repayment periods
5.
It will be more efficient since it will have the state-of-the-art
equipment
6.
It will have a wider reach internationally –many correspondents
in different countries
7.
It will have a wider branch network
8.
It will attract the best employees/well
remunerated/motivated/efficient
9.
It will have strong corporate governance ethics – corporate
social responsibility, pay taxes, avoid unfair trading practices etc.