BANKS have proposed the conversion of outstanding foreign currency accounts balances appropriated by the Reserve Bank of Zimbabwe during the height of the hyperinflationary period into Treasury paper. According a position paper from the Bankers Association of Zimbabwe in our possession, bankers want the RBZ to deal with the issue of FCA balances and the interest accrued to date by issuing Treasury Bills with staggered maturities between one year and four years.
It is envisaged that the move will enable conversion of the FCA balances into earning assets and at the same time ensuring that the maturities do not constrain the Government’s current obligations.
Companies, NGOs and individuals have in the past tried legal action against the RBZ to recover their monies.
The efforts against the central bank have hit a brick wall after Government enacted legislation to prevent attachment of the RBZ’s assets over fears that the asset grab could plunge the country into a crisis.
Last year a cotton spinning company, Scottco, filed a lawsuit seeking to recover R2,6 million drawn from its two bank accounts five years ago while Trojan Mine also won a case to have its monies paid back.
Most recently Chinese company China Shougang International won its case before the High Court for the restitution by Standard Chartered Bank of Zimbabwe of its FCA balances lost while in the bank’s custody.
Fears abound that China Shougang International’s success could result in a flurry of similar lawsuits by affected companies against banks to recover their finds, which could plunge the banking sector into crisis.
Legal experts said it should be brought to the attention of Government that while it is common in situations of national bankruptcy and hyperinflation to forcibly convert foreign exchange into local currency as was done under United States Executive Orders 11051, 11490 and 11921, and by many other regimes in 1933, Government cannot simply take the foreign currency for no value.
“Takeover of currency for no value is unconstitutional. Expropriation without compensation is prohibited by Section 71 of the Constitution and was prohibited by Section 16 of the old constitution,” said a renowned Harare lawyer on condition of anonymity.
The appropriation of the funds followed a monetary policy statement issued by the RBZ in October 2007 centralising all foreign currency accounts and directing transfer to the central bank within 24 hours of all corporate foreign currency balances held by authorised dealers.
The central bank used the FCA balances to fund a number of strategic national obligations at the height of the impact of illegal sanctions imposed on the country by the West over the land reform programme meant to also give productive land to the majority blacks.
Expectations are that the move will go a long way in restoring confidence in the banking sector as well as improve the liquidity of firms whose money was taken away by the RBZ to fund national programmes.
The rates to be used will be on a sliding scale from 7 percent for the first year to 4 percent on the fourth year. The minimum threshold will be US$50 000.
The bankers association said the TBs should have a prescribed asset status and tax exemption status and liquid asset status. Its security will be a credit guarantee from the Ministry of Finance and Government.
The proposal is based on the allocation as in terms of balances being owed, cost of funds obtainable in African and international markets considering the financial position of the central bank, the yields obtaining on Government securities running in the market.
It will also improve the liquidity of banks as they can trade the TBs issued in the interbank market. Others say the issuance would offer insurance companies and pension funds an alternative liquid asset to invest in.