Finance minister Tendai Biti says Treasury has indefinitely suspended the conversion of pre-dollarisation bank balances to the US dollar, the country’s base currency, following the demonetisation of local currency in July last year, citing arbitrage and rent-seeking behaviour by banks.
Treasury estimated it would cost up to $7 million to redeem the stock of local currency held by banks, but faced higher claims soon after making the announcement in the mid-term fiscal policy review statement last year.
“The bank balances suddenly became pregnant after the announcement,” Biti said.
“Suddenly, they doubled. Suddenly, they became pregnant. That’s why we stopped. Bankers, tell us who fathered and who mothered?”
Biti said government broke ranks with banks over the issue, which he described as both “fraudulent” and “arbitrage and rent-seeking behaviour”.
He said the $7 million estimate was based on the last ZW$/US$ parallel market exchange rate before dollarisation in February last year: 1:35 quadrillion.
Bankers’ Association of Zimbabwe president John Mushayavanhu was not available to explain.
But it appears the stock of banked savings ballooned as a result of new deposits of currency that was held outside the formal banking system before the announcement.
This includes money that funded the parallel market in and outside the country.
Zimbabwe adopted a basket of multiple hard currencies in February 2009 as a stabilisation measure, without striking a formal deal with the relevant central banks or securing the critical initial injection of hard currency with which to redeem local currency.
This reduced every Zim dollar saving to dead capital and forced every economic agent into a start-up mode, from firms and individuals to government.
Government eventually demonetised the local dollar on July 1 2009 and committed itself to convert the stock of savings into US dollars, a matter now indefinitely shelved.