RBZ reforms an urgent matter

Terence Zimwara

The current Reserve Bank of Zimbabwe (RBZ) executive team is following to the letter, the script used by its predecessors if media reports are anything to go by. Media reports suggest that the RBZ is now taking centre stage again, officials definitely want the unbridled power of the central bank restored.

One media outlet carried a report suggesting the RBZ is once again raiding bank accounts of private individuals to finance its programs. The media report quotes the RBZ official as saying that the central bank ‘is sweating idle RTGS balances.’

Another headline suggested the RBZ was livid that pharmaceutical companies inflated prices despite getting foreign currency allocation from the central bank. While the two news items might elist different reactions, the difference is the same, both point to the flaws in the RBZ that need to be plugged.

So when a senior RBZ official publicly admits the central bank is using people’s money without their prior knowledge or consent, this potentially sets off a chain reaction that inevitably dents public confidence in the central bank.

Equally, it does not argur well for public confidence when the central reverts back to micro-managing the economy, a practice that once alienated the central bank from the rest of government. The RBZ should only concern itself with monetary policy and leave direct intervention to the relevant ministries or government. As it stands now, the RBZ has already resorted to the much maligned quasi-fiscal activities and that is bad news for the economy.

It must be said, the RBZ still has a public confidence deficit stemming from its previous misdemeanors before the 2008 economic meltdown. These latest revelations are only going to make life more difficult for the RBZ. The same disastrous policies that the RBZ is now pursuing are the same policies that were responsible for erosion public confidence in the institution by 2008.

It was imperative that after 2008, relevant authorities had to reform this institution before it returned to its traditional role in the economy. The fact that the central bank is already resorting to some of those roles, clearly proves the RBZ was prematurely returned to a focal point in the economy.

Confidence is a very fragile attribute, it is easy to destroy but very difficult to rebuild as the RBZ will attest. When a wide spectrum of economic experts and politicians all agree that the country is better off joining the rand monetary union, that itself is confirmation there is little confidence in the RBZ.

Consequently, there is need to revamp everything about the RBZ, its name, the process of appointing its staff, its responsibilities etc. this has to be done to help restore confidence. As it stands now, the same weaknesses or flaws that led to its cataclysmic collapse as an influential player in the economy remain in place. For instance, if Dr Gideon Gono’s RBZ could access private accounts back in 2008 and now Dr John Mangudya’s team is reported to be doing the same, then it is easy to conclude that no reforms ever took place. One would assume that by now, it would be impossible for the RBZ to easily draw funds from private bank accounts without the knowledge of the account holders.

Conceivably, that is why pleas, exhortations and even threats by RBZ have by and large failed to influence major companies like mining firms to stop externalizing some of their foreign currency receipts. The mistrust still exists and these news reports do not bode well for the RBZ.

Before the cash shortages began, bank deposits had remained transitory in their nature since dollarization because the public did not trust the financial system after losing money in 2008. Medium and long term deposits have since then eluded the Zimbabwe economy due to confidence issues.

Government must create a legal framework that deters RBZ officials or anyone else from illegally withdrawing from private bank accounts. This is one crucial step that must be taken to restore confidence in the central bank and the banking system in general.

The appointment of RBZ staff is one key area that has a bearing on public confidence and it needs to be looked into. According to the relevant laws, the governor of the central bank is appointed by the President after consultation with the minister. However, this might need to be changed to allow parliament to be involved in the recruitment of not only the governor but all senior staff and the board of directors.

While the new constitution reaffirmed an executive presidency, experience has shown that this presidency is quite often overwhelmed by the sheer size of duties and responsibilities heaped on it. Appointed individuals sometimes take advantage of this by engaging in activities outside the scope of their mandate.

However by sharing oversight of RBZ, both parliament and the presidency will be able to complement each other in ensuring appointed officials stick to their terms of reference. At least this way, relevant stakeholders will be assured of better management and oversight of this important institution.

Lastly, the Gono era popularized the so called quasi-fiscal activities as outlined in the preceding paragraphs. The RBZ spent millions of dollars funding agricultural activities and infrastructure development projects.  Dr Gono has previously defended his actions arguing that it was necessary at the time and consequently, he has not faced any retrospective action for going beyond his terms of reference. Now the present RBZ executive seems to be following the same path as that of its predecessors.

Here the issue is not so much about the type of activities carried but it is about oversight and responsibility as well as the RBZ’s capacity or lack thereof to handle such activities. For instance, if Dr Gono carried out his quasi-fiscal activities in a transparent and regulated manner then perhaps there would never had been any controversy.

In any case, the RBZ is not equipped to deal with farmers or pharmacies and the beneficiaries of the central bank’s interventions are well aware of this hence the abuse of assistance given.

If the RBZ is reformed to the satisfaction of all stakeholders then it might possible for the central bank to issue currency that will not be rejected.

Terence Zimwara is a writer and commentator. Contact him on 0771799901 or tem2ra@gmail.com