In a Monetary Policy Statement issued in terms of Section 46 of the Reserve Bank of Zimbabwe Act (Chapter 22:15) and Exchange Control Directive RT 120/2018, the central bank instructed all banks to open separate Nostro Foreign Currency Accounts(FCAs) where their clients can now deposit foreign currency. This is not the first time Zimbabwe has grappled with local versus foreign currency although previous attempts to solve the anomaly have been disastrous. Rather than being a policy issue, this has largely become a trust issue. People have been let down before and their fears this time around have to be understood.
The first raid (2000 – 2008)
It has become common knowledge that between 2000 and 2008, the Reserve Bank of Zimbabwe ordered banks to surrender foreign currency deposits to them. Faced with a growing international debt and dwindling financial resources, the government decided to raid that foreign currency kitty. Apart from settling its international debt, government also used the money to pay for fuel, maize seed and fertiliser imports. These were then given to farmers for free. When quizzed about this at the time, the then Governor of the Reserve Bank , Dr Gideon Gono insisted that any suggestion that foreign currency accounts had been raided were “scandalous to say the least”. This was to be the beginning of a relationship characterised by mistrust.
Standard Chartered Bank versus China Shougang International (2013)
In 2013, the Supreme Court ordered Standard Chartered Bank to pay back more than US $47 000 to China Shougang International. This was money which had disappeared from the latter’s account held with the bank. Despite Standard Chartered Bank arguing that the Reserve Bank of Zimbabwe were liable to pay back the money since it had been forwarded to them as per prevailing requirements, the Supreme Court still maintained that this was a risk which the bank needed to take note of when it forwarded money to the central bank. Since the complainant had deposited their money at the bank, it was the same bank which was expected to avail the money when asked to do so. This is a precedence which many fear will absolve government again if the Nostro FCA arrangement turns sour. Banks are very sceptical. They have every reason to be.
Zimdollar demonetisation (2015)
When the Zimdollar was officially demonitized in 2015, all the Zimdollar deposits that had existed at the time when Zimbabwe moved to a multicurrency system had to be converted to US dollars. The rate to be used was US $1 as to $35 quadrillion Zimdollars and depositors ended up getting just $5 each. This is another setback which is still fresh in the minds of depositors. There were many who lost their life savings and pensions during this era and the saying goes, once beaten, twice shy.
The bond note (2016)
The introduction of the bond note in 2016 was accompanied by assurances that whoever wanted their money in US dollars would get it and those who wanted to pay for goods and services in foreign currency would also be able to do so from their bank. Surprisingly, the banks started to ask DSTV subscribers to pay in foreign currency and depositors became restless. What this effectively means is that those who have been depositing foreign currency since 2009 have just lost all of it. Their money is now some nameless currency sitting in what has become known as the RTGS FCA account. The act of asking banks to now open a separate Nostro FCA can be viewed as an admission that the bond note is not at par with the US dollar, something which the government has vehemently denied in recent times. Again this is another source of lack of trust.
A new dawn (2018 and beyond)
This time around, Finance and Economic Development Minister, Professor Mthuli Ncube has moved to allay fears that people’s Nostro FCAs will be raided. “They have been ring fenced”, he says. A few points need to be noted here. Firstly, the government has not made it a secret that they are on a deliberate drive to pay off their debt so as to qualify for new lines of credit. Secondly, it is not a coincidence that vehicle import duty now has to be paid in foreign currency. This paints a picture of a government whose appetite for forex cannot be ignored. One hopes the foreign currency will not be harvested from the Nostro FCAs.
A glimmer of hope
Some voices in the business sector have applauded the move to open separate Nostro FCAs however. They argue that the measures will encourage people to bank their foreign currency. In the medium to long term, foreign currency supply will improve considerably. In addition, exporters will be able to retain their foreign currency because it will be paid direct into their Nostro FCAs rather than the old system.
Maybe it is too early to judge the government on the basis of past eventualities. In any case, the Nostro FCAs are only just around two months old and the dust is still settling after the recent budget presentation. What is clear is that government needs to do more than just policy pronouncements in order to repair its battered image.