VZCZCXRO3624
OO RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #1028/01 3231218
ZNR UUUUU ZZH
O 181218Z NOV 08 ZDK
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3698
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 2431
RUEHDS/AMEMBASSY ADDIS ABABA 2549
RUEHRL/AMEMBASSY BERLIN 1049
RUEHBY/AMEMBASSY CANBERRA 1825
RUEHDK/AMEMBASSY DAKAR 2180
RUEHKM/AMEMBASSY KAMPALA 2605
RUEHNR/AMEMBASSY NAIROBI 5033
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RUEHGV/USMISSION GENEVA 1698
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 03 HARARE 001028 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR B. WALCH 
DRL FOR N. WILETT 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
STATE PASS TO USAID FOR E. LOKEN AND L. DOBBINS 
STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN 
 
E.O. 12958: N/A 
TAGS: PGOV ECON ASEC ZI
SUBJECT: RESERVE BANK AMENDS SOME PAST FAILED POLICES 
 
------ 
SUMMARY 
------- 
 
¶1.  (SBU) The Reserve Bank of Zimbabwe issued a statement on 
November 13 outlining several changes to bank regulatory 
policies designed to address cash shortages, the near 
collapse of the payments system, and exorbitant prices in 
stores licensed to deal in foreign currencies.  The changes 
to Zimbabwe's financial regulatory regime are stop-gap 
measures that merely amend past failed regulatory polices, 
and make no attempt to address the unfunded spending and 
monetary supply growth that are core contributors to 
Zimbabwe's self-wrought hyperinflationary crisis.  END 
SUMMARY. 
 
-------------------------------------------- 
Corporate Daily Cash Withdrawal Limit Raised 
-------------------------------------------- 
 
¶2.  (SBU) The Reserve Bank of Zimbabwe (RBZ) raised the cash 
withdrawal limit for companies to an amount equal to 120 
percent of their previous week's cash deposits at banking 
institutions.  Prior to this change, corporations were 
limited to Z$1 million cash withdrawal limit per day 
(equivalent to US$1 at the current cash parallel market 
exchange rate).  The move came in response to business sector 
demands for higher withdrawal limits to enable companies to 
pay worker salaries in cash.  This limit should be welcomed 
by companies dealing in bulk cash and is designed to 
encourage businesses to deposit money into formal financial 
institutions.  However, few companies have excess Zimbabwean 
dollars to deposit because they convert any significant 
quantities of local currency into forex. 
 
-------------------------------------- 
"Tax" on Foreign Currency Licenses Cut 
-------------------------------------- 
 
¶3.  (SBU) The RBZ cut the surrender rate on foreign 
currency-licensed stores from 15 percent to 7.5 percent. 
These companies had been required to give 15 percent of their 
gross forex sales to the RBZ in exchange for local currency. 
However, the disparity between the inter-bank rate the RBZ 
applies to these foreign currency sales and the 
market-dictated parallel exchange rate effectively meant that 
businesses had been receiving nothing in exchange, and the 
surrender was merely a tax.  Another new measure allows local 
companies--with foreign financing and importing foreign goods 
that they plan to sell locally--to retain 97.5 percent of 
sales proceeds.  The RBZ intends for these two measures to 
reduce prices and increase the availability of goods. 
However, the lack of foreign financing makes the second 
measure largely inapplicable.  (NOTE: Zimbabwe's credit 
rating has dipped so low that international ratings agencies 
no longer even apply a sovereign debt rating.  Failure to 
make good on past debts has scared away virtually all foreign 
financing.  END NOTE.) 
 
-------------------------------------- 
More Institutions Allowed to Dollarize 
-------------------------------------- 
 
¶4.  (SBU) Mortgage providers, real estate agents, and 
property developers are now allowed to register as foreign 
exchange-licensed entities, enabling them to price and sell 
homes in foreign exchange with a surrender value of 10 
percent of gross proceeds to the RBZ. 
 
-------------------------------------------- 
 
HARARE 00001028  002 OF 003 
 
 
Real-Time Gross Settlement (RTGS) Reinstated 
-------------------------------------------- 
 
¶5.  (SBU) The RBZ reinstated the RTGS system for transactions 
over Z$5 billion (equivalent to less than a penny at the 
check rate which is similar to the RTGS rate), excluding 
salaries, settlement transactions and government 
transactions.  The RBZ emphasized the need to employ "know 
your customer" principles to reduce instances of abuse that 
the RBZ charged had compelled the central bank to suspend the 
system.  The October 3, 2008 suspension nearly caused the 
entire payments system to collapse, as most companies refused 
to accept payment by check, and cash was scarce because of 
low daily cash withdrawal limits and paper shortages.  Those 
accepting checks hiked prices to levels they estimated would 
offset the loss arising from a four-day clearing period.  The 
RBZ also decided to limit inter-account transfers to five per 
day, excluding salary payments.  Financial institutions have 
been warned to abide by the stipulated rules and to 
concentrate on their core business activities, as any failure 
to do so will attract severe penalties, including a 
three-month RTGS ban. 
 
--------------------------------------------- -- 
Minimum Bank Capital Requirements Held in Forex 
--------------------------------------------- -- 
 
¶6.  (SBU) The RBZ ordered that bank capital reserves held at 
the RBZ must be denominated in foreign currency rather than 
in Zimbabwe dollars at the prevailing inter-bank exchange 
rate.  This is a clear admission that the inter-bank rate 
bears little resemblance to the parallel market exchange 
rate, because applying the inter-bank rate would leave all 
banks heavily undercapitalized.  This measure will likely 
increase forex demand and further depreciate the Zimbabwean 
dollar.  Some banks will have severe difficulty meeting the 
requirement. 
 
------------------------------------ 
Raising Interest Rates Has No Impact 
------------------------------------ 
 
¶7.  (SBU) In a post-statement interview, RBZ Governor Gideon 
Gono explained that the RBZ lending rate (the rate charged 
when local banks borrow from the RBZ) had been raised from 
7,500 percent to 10,000 percent for secured lending, and from 
9,500 percent to 40,000 percent for unsecured lending.  Banks 
are supposed to deposit 30 percent of the security in 
Zimbabwean dollars cash, 25 percent in foreign currency, and 
the remainder in traditional instruments such as treasury 
bills.  Given the prevailing liquidity in the market, the 
rates are immaterial because no financial institution has 
borrowed from the RBZ in a very long time, according to John 
Mushayavanhu, the Deputy President of the Banker's 
Association. 
 
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COMMENT 
------- 
 
¶8.  (SBU) The measures introduced by the RBZ largely reverse 
or amend several failed financial regulatory policies.  The 
RBZ has belatedly reached the rather obvious conclusion that 
suspending electronic payments, generally restricting the use 
of foreign currency, and severely taxing the few remaining 
significant forex earners is poor regulatory policy.  The 
overt dollarization in several of the amendments also 
recognizes a Zimbabwean reality: the local currency is 
practically worthless.  As always, the new measures do not 
address the unfunded fiscal spending and monetary supply 
 
HARARE 00001028  003 OF 003 
 
 
growth that are core contributors to Zimbabwe's economic 
crisis.  END COMMENT. 
 
McGee