The Sunday Mail
Among the main drivers, directly and indirectly, of the foreign currency black market are banks funding their more reckless customers so they can play games, or helping them access the black market, or even manoeuvring themselves through the morass.
The investigation launched after the May 7 ban on new bank loans, lifted 10 days later when the Financial Intelligence Unit and other authorities had a reasonable idea of what had been happening, discovered that 12 of Zimbabwe’s 16 banks had been systematically breaching the rules, President Mnangagwa announced yesterday.
The 12, the proverbial dirty dozen in fact, were fined, which would mean those steep civil penalties that can be imposed very quickly by a designated officer of the Reserve Bank of Zimbabwe on the balance of probabilities without going through the long and very involved process of a criminal trial with all the legal delays.
This kind of action that results in the equivalent of a fine without a criminal conviction is common in most countries when it comes to banks breaching the rules and regulations, and does hit banks hard where it hurts the most, in their profits.
In fact this is one reason why a large number of American banks are twitchy about doing routine business with Zimbabwean banks because they fear they might include someone under sanctions and get hammered as a result. They say that the amount they need to spend on investigations is greater than the fees they earn in pushing through what amount by US corporate standards to very modest sums.
The President said the dirty dozen pleaded with the authorities not to name them, because “they might lose customers”. A few chief executives and their senior managers could have been shown the door as well.
All banks, both those traded on a stock exchange and those with shares far more closely held, are still obliged to publish fairly complete results frequently to meet Reserve Bank regulations. Perhaps the reports covering the second quarter of this year could provide some interesting reading along with a few lessons on just what can be buried in a set of accounts if someone’s job is on the line.
Banks have put in place the internal measures they need to know their customers and while a customer can probably do the odd modest bit of skating on thin ice, they certainly cannot do anything very dramatic or systematic without arousing some deep dark suspicions in the mind of their bank manager.
We need to note that the authorities, even after having a very good look into the depths of each bank, something they do these days with modern software from their desks, cleared four banks and found that these four had been following the rules properly. This means it is quite possible for all banks to make profits through their normal business.
Until the Second Republic, the bulk of the money was created out of nothing and the resulting inflation came from the Government. In 2018 there was a major change and Zimbabwe went from loose fiscal discipline to one of the tightest fiscal setups around, with balanced budgets, hard tax collection, and Government ministries and departments were forced to follow the budget and to account for everything.
Shortly afterwards this was followed by a positive balance of payments, that is our foreign currency inflows exceeded our outflows, and so there was enough foreign currency. That should, after some adjusting and sorting out what was hidden, have resulted in very low inflation, stable exchange rates and the like.
It has, at times, but we then have sudden surges and spurts. The Reserve Bank checked out its own auctions and found some cheating, and that some of the cheats had either very slack bankers or conniving bankers. So it tightened rules. Sometime of course a cheat could bank with two or more honest competent banks and just not pass on the information.
But the latest spurts appear to be very largely funded by free-for-all lending, that is people and businesses borrowing money they certainly do not need for normal business requirements. And that money goes into speculation.
This is way beyond what can be considered understandable cheating, that is trying to preserve value by dipping into the black market with your own money and locking away the foreign cash. That dealer is not too fussed if the rate stabilises since their motive is preservation. There is damage, but not a lot.
But we also get those who need a falling black market exchange rate to make money, since the original money is borrowed and then must be churned between currencies or in more complex deals that involved goods and services as well, so the money can be paid back with interest. And here we get what can be thought of as vampires, those who need to feed on blood. And their bankers know what they are doing.
Since the black market is small compared to our total foreign currency flows, it does not need huge fortunes to mess everything up enough to produce the blood.
And then burrowing around the edges are, as President Mnangagwa noted, some who want to see Zimbabwe collapse and fail. We need to remember the comments made by former US Assistant Secretary of State of African Affairs Chester Crocker two decades ago on the need to get the people of Zimbabwe so desperate they would rise up against their Government.
The latest efforts for personal gain and for even nastier ends need to be blocked. The latest effort to block private liquidity and money creation appears to be working to a degree, but it also seems that this is a continual effort, requiring pressure on the whole system. A dirty dozen of banks were snared in the last effort and have promised to reform. Now they need to be watched along with others who appear needing disaster to become wealthy.
