The study Seeks two provider a critique of the Theoretical framework of economic governance as it relate the two financial sector in Zimbabwe and identify Institutions in the financial sector and explain Their roles. It Also Seeks two unpack the Concepts related to the banking or the financial sector, with as the specific emphasis on the role of central banking from a policy and developmental perspective. Outline of the economic history of the development of the financial sector in Zimbabwe and the regulatory framework Governing the financial sector goodwill Also ask the dealer. Thurs capture the community’s view and experience of the financial sector Within the period 2003 Thurs 2009, recording of community voices ha Been done, with main emphasis on the views around the inclusion or exclusion, popularize Notions of monetary policy and banking, and impact (perceived or real) of Wed These people’s social conditions. FINALLY the study Seeks two equipment the poor and grassroots communities and the working classes, two meaningless engage fully in Discussions on the role of monetary Institutions as part of an Ongoing Engagement Wed economic and public policy advocacy.
There ha Been Increased call for a Greater attention to the development of financial systems in Many countries all over the world. The financial sector is well known for its purpose of allocating Savings, from two units Surplus Deficit units. One Can garden of plenty of resources (cash or wealth), But is not Prepared two use or consume in the current period seems But in the future. And On The Other Hand May of an economic agent need funds for a purpose as the specific Currently But due some reason two garden en Adequate funds. So Financial Institutions help in collecting funds and match the current needs of investors and something Hence creating economic development by avoiding idle funds. Some researchers (Herring and Santomero (1991)), argue That the direct impact of Financial Institutions on the real economy is minor, while the indirect impact of financial markets and Institutions Wed economic performance is extraordinarily Important.
A financial system Which is efficient and healthy is a vital component of the Necessary and fast economic development. If a financial system is efficient, it simply shows Hubble profit portability improvements, Increased funds intermediation, better prices for financial products and quality services for the Consumer. If the financial system is under tight Regulation, financial markets Would not comfortable asking two function efficiently and the use of resources Would not provider Desired outcomes. It noted Hubble Also pray That Reforms in other Sectors garden less impact on the overall economic development if the financial sector is under control, Edirisuriya (2007).
As part of the economic growth strategy, aimed Many economies garden that improv wing Their financial sector. Ghana structured its financial Reforms in two phases, FINSAP FINSAP 1 and 2 (Financial Sector Adjustment Program) and the reform of the Non-bank Financial Institutions credit, Gordon (2008). An assessment of the impact of this policy Wed Savings, investment and the growth of income (GDP) in the Ghanaians economy was under taken by Gordon (2008) and positive impact of the financial sector on the economy. Previously, Ghana operated a tightly regulated financial system and the impacts of These policies Wed economic development were found To Be Dismal. The country Turned To The International Monetary Fund (IMF) for assistance two reshapes the Macroeconomics structure, and one of the two policy packages was reforming the economy’s financial system. Financial liberalization There AFFECTED Positively after the interest rate, Savings, investment and GDP in Ghana. Sri Lanka Also Went ahead with its financial sector Reforms about three Decades ago, Piyadasa (2007). The Reforms Were Also spearheaded by the IMF and World Bank, and They encouraged the opening up of financial markets for foreign and domestic competition and two Living With efficient Functioning of financial market with less government interference.
Major economic factors that include two look, the inflation level, the rate of economic growth, unemployment levels, balance of payments and the exchange rate (Business Studies Online). A well Functioning financial sector is comfortable two Positively Influence on the economic factors. High levels of inflation Have a number of problems, two people try so save money and spend less goodwill, high prices Becoming Leading two people worse off, increase item costs’ goodwill and goodwill exports decrease Hence exporting companies Greatly AFFECTED Leading two unemployment. The Zimbabwean nation ha Experienced Such problems and do not wish two hours Such two return soon, Savings garden Been eroded.
Capital goods production is one of the best gateways an economy achievers a long loading sustainable and stable economy. Financial services stimulate Savings, investment and growth of GDP and for that matter economic growth by increasing the rate of capital accumulation and by improvising the wing efficiency with Which the economies use capital That, Gordon (2008). Well Functioning banks spur technological innovation by Wed Identifying and funding Those entrepreneurs with the best Chance of successfully Implementing innovative products and production process.
The research Seeks two explore the financial sector in Zimbabwe, its impact on the economy and how the Central Bank policies affect the operations and efficiency levels in the economy. It dates back hum the crisis period (2003-2009). The crisis originated from Central banking policies adopted hum and before the crisis. The Reserve Bank of Zimbabwe (RBZ) adopted an uneconomic forms two control the level of money supply in the economy, and Hence it failed to control the economy. The RBZ failed to control its independency status from the political family and supported Hence uneconomic projects by printing excess money.
The relationship Between the RBZ and Other Financial Institutions hum the crisis period Can ask the y explained What the RBZ Called ‘Financial Indiscipline’ in 2008. It is Reported That hum the last quarter of 2008 the financial sector had sat fallen back Into Territories of indiscipline and general malaise, Resulting in the Contamination of EthicsLine in Institutions Such as the Zimbabwe Stock Exchange (ZSE) Which invented the deadly Phenomena of “burning money “. Indiscipline in banking and stock markets is precisely What ha largely Been Responsible for the global economic crisis Particularly in the United States, RBZ Monetary Policy (2009).
The RBZ Governor, was quoted in historical Monetary Policy Statement, blaming the Financial sector and warning it Against indiscipline in the market;
“As true as the sun Rises and sets Each day, the” miracle “of” burning “money could not be sustained but by women and children of flesh and two garden pretending the supernatural powers of Our Lord Jesus Christ. It was soon-to-back-four and consume Those WHO were stroking the fires in the first place. “
The Governor argued
That it is the activities of the Financial sector That transforms the two Central Bank To Be blamed, Hence ha ha warned it Several times, and ha put measure to control Their activities. The Governor SPECIFIED That New Measures constitute a war Against idleness as something ‘without gainful activity, citing road port and world-banking sextillionaires Destined for the Starvation market. Hence this evidence from the RBZ ha bothering social and economic Wed Influence Individuals and companies, and it is the impact of its Influence That we seek two analysis. It was Pointed Out That individual and collective actions of the past garden not taken the economy anywhere, Particularly in the areas of advancing collective socio-economic programs affected Hence RBZ Initiated change of behavior, even from the politicians and diplomat. The RBZ set up a 5-year framework guide the two financial sector activities so thats no shift from core banking business to speculative Transactions.
Financial Institutions in Zimbabwe
Zimbabwe’s financial sector is Relatively Sophisticated and consists of the Reserve Bank, discount houses, commercial banks, merchant banks, finance houses, building societies, the Post Office Savings Bank, numerous insurance companies and pension funds and a stock exchange. As the 25 January 2009 Zimbabwe 15 ha commercial banks and building societies 4 under the supervision of the Reserve Bank of Zimbabwe.
Commercial bank Been garden and are one of the Most Important contributors of private sector credit and Therefore highly influential over the wine areas of economic activity. Howeve, Currently They are facing financial constraints, as the Reserve Bank can not perform its function as a waist of last resort due two the phasing out of the Zimbabwean local currency. Commercial bank’s garden in fact changed their loan structure, They are now Lending short term loans, just for Their survival and two certainties Credible analysed economic agents. Short term loans are very costly as the interest is very high. They can not ask for exceptional sustainable investment, as capital investment needs To Be matched with long term loans. Hence, Various Organisations are financially constrained, with Several Small and Medium Enterprises (SMEs) shifting Their operations, and the shift is not proper for the growth of the economy as it Create’s gaps in the economy. The banking sector ha since facing problems; They garden retrenched Their work force, as something They garden shut operations due two the crisis.
The performance of the financial sector Currently Can pray explained by the return on investment registered through the Zimbabwe Stock Exchange (ZSE) market. Very Few companies registered on the stock exchange are making huge returns. The volatility of the Index Mining and Industrial Index is very low, Indicating That it is not worth two invested in shares, as the return is almost two nothing. Also Individuals are not comfortable two gene Savings rate two invested in the stock market, as Earning Many are very low allowances, father Below the Poverty Datum Line. Workers are withdrawing all of Their allowances in Their bank accounts, leaving nothing for the two banks do Their Own Investments. Banks are Surviving on the bank charges and minimum balances for investing, making it hard to gene rate Lending money for the needy two investors. Currently the economy is comprised of deficit agents WHO need to ask rescued in the financial drought and very Few Surplus agents.
General Functions of Central Banking
A central bank is known as the apex of the banking structure. A central bank is distinguished from a normal commercial banking Because it ha a Monopoly Wed creating the currency of That nation, Which is two loaned the government in the form of legal tender. Central banks around the world garden more or less the same roles They perform for the benefit of the economy, what is diff Their efficiency and scale of operation. Most importantly is the level of central bank independency two political Influence. Most of the rich countries today garden independent central bank, That is, Which ones operate under rules designed two Prevent political interference. Examples include the European Central Bank and the Federal Reserve System in the United States.
In a summary the general functions Can pray listed as follows:
1 Supervision of the Entire banking system in the economy. (2) Should act as the government advisor Wed monetary policy. (3) Issue of bank notes and coins (money printing). (4) Acting as two banks Other banks. (5) Acting as two government banks. (6) Raising money for the government. (7) Controlling the nation’s currency reserves. (8) Acting as “loins of last resort.” (9) Liaising with international bodies.
howeve it is two noted pray That Wed Each and everythings function, Each country’s Central bank ha its own level of efficiency depending on the resources, rules Governing Operations, Flexibility and Many Other factors. The Central Bank of Zimbabwe Commonly known as the Reserve Bank of Zimbabwe (RBZ) Also perform something of the above functions and ha its own efficiency levels and Hence Affecting the transition of the economy’s growth pattern.
Traditional functions and Developmental Functions of Central Bank
Also Worthy explain the two Several functions of the Central Bank in terms of origin and development perspective. For everythings Central Bank, There are basic functions That it is two during take for the public’s benefit and Also the economy in general. It is taken as the Hubble WHO leadership by example and operate Hubble spear head the path of Which agents are two earner. Hence the Central Bank ha bothering Economic and Social Influence.
Traditional functions refers the two roles Obvious That the bank ask Carrying Hubble. If the Central Bank is not efficient in These roles, it Can Quickly ask criticised by everythings economic agent. Inefficiency is Quickly is detected.
Can ask the dealer button as follows:
1) Public Confidentiality. (2) Uniformity in money Approved. (3) easiness in credit control (4) Control in value of money. (5) Economy (6) Elasticity (7) Stability (8) easiness in monitoring and controlling
If the functions are well under taken by the Central Bank, said the economy is stable and ask two economic agents Hubble ask Earning normal business profits, allowances Workers Earning decent, well priced goods and social status accept comfortable.
Developmental functions refers Those two functions are That Strategic in nature and helpful the overall economy To Be Competitive Other two nations. They are Associated with Various economic policies That Guide The entire nation Wed good business practices, enhance efficiency That. The functions involve publication of economic data That Can ask unusually By Various economic agents of Their Own analysis and economic forecasts, so as my two determining the best ways of operation That is profitable and sustainable.
Can pray listed as follows:
1) Economic Development (2) Development of banking system (3) Contribution To The Development of financial institution (4) Publication of economic data. (5) Supporting loan two of the poor sector (Empowerment) (6) Establishing the commercial banks in joint ventures (7) Development finance
If the Central Bank is not party to correctly capture the functions, political Influence Comes Into Play, Because They deter mine the efficiency of the Ruling party. Also the efficient levels of the Central Bank Towards the developmental functions May Be AFFECTED by the level of independency it ha from the political world.
The Central Bank of Zimbabwe (RBZ) and its General Functions: Current Analysis
The efficiency and smooth running of Many economies depends on the activities and functions of Their Central bank, and from this phenomenon goodwill make it Necessary two analysis Each basic function carried out by the Reserve bank of Zimbabwe.
The Central Bank is supposed two issue bank notes and coins
This function refers two the issue of printing paper money and is not as simple as It Might Seem. Only the central bank ha the right two issue bank notes and coins in the economy and no one else. Printing of paper money and issuing of coins is highly depended Wed an economic formula of Which if the formula is bypassed, it goodwill change the path of economic development of the nation and Causes Hence inflationary effects. Hum the 2003-2009 period, the RBZ abuse its right of printing and issuing notes and coins and end up printing excess money and inflation Hence Exponential increase item and the economy was unstable. It Uses the wrong formula, of issuing the notes and coins. A correct economic formula matched the level of reserves two the amount of paper / discretionary money in the economy. Due to the abuse of the role, the Zimbabwean dollar, lost its credibility in the economy, and Turned Into unwanted currency. Economic agents preferred stable currencies Than the local currency, enforcement of Laws was done two ensure continuous existence of the local currencies But Could not work. Penalties were imposed, But Still Could not work as the RBZ continuously printed more money two finance government expenditure. ‘Good’ money replaced ‘bad’ money in the Zimbabwean economy. Until Such a time When the local currency was Completely rejected for any transaction, the two Authorities were forced authorise the use of Other currencies for Business Transactions (Multicurrency regime).
These Days do not cash involved in the matter But Cheques, standing order, direct debit, credit cards and so on, howeve cash is Important as bank’s cash holdings are a constraint Wed creation of credit. As of now the RBZ is no longer comfortable two perform the function of issuing notes and coins, Because the Zimbabwean currency ha no right now. The economy is using South African Rand and the United States dollar for Business Transactions. The amount of forex in the economy depends on the strength of attraction from the services the economy is rending two Other nations, donors and credit from the International Organisation.
The Central Bank Hubble act as “loins of last resort.”
the two economy function well ask, ask Organisations Hubble working that full capacity and with no constraints. One major constraints Organisations face is the financial constraints. Companies usually Obtain Loans from banks and Financial Institutions, Ranging from short term loans two long term loans (Mortgages). Howeve There is a time When banks are not comfortable two meet demand and Hence the Central Bank is two ask the loins of last resort. The government treasury bill and bond markets are covered by the central bank. It can offer in Many types, There are 30 day treasury bills, 90 day treasury bills and 180 days treasury bills. One good thing with the Central bank loans is That They are cheaper as Compared to commercial bank loans.
The RBZ is not comfortable two act as the loins of last resort, There is no production of its funds around activities and Neither Can it print as There is no currency. The RBZ ha lost its credibility, with the economy, Other Nations and development banks. In fact, it is struggling two pay its own debt, it ha hum accrued crisis period. Therefore, the bank can not extendwatchlist its hands two Others Rather is waiting for Such favors.
Government Advisor Wed monetary policy
Because, the Zimbabwean nation ha Currently no local currency of its own, the RBZ can not fully Advise the government on the central issue Wed monetary policy. The role implies That the RBZ Would control the level of money supply in the economy allow two smooth business operations, and Avoid inflationary effects. Howeve, for the monetary policy statement is still Approved in the economy, only two explain the happenings in the economy as father, as interest rates are Concerned. The monetary policy is no longer the road map Which economic agents rely on, and it ha lost its traditional Importance.
Supervision of the Entire banking system in the economy
The Central Bank Should Be at the top of bank and all Other Hence Regulating and monitoring the activities of the sector. The RBZ was in charge hum the period, it was monitoring the minimum capital requirement levels. Hum the period something bank Which were not performing According to the required level and not in line with the set regulatory framework were forced two close and something merged, for example the Time Bank was closed, Intermarket Bank was Swallowed by ZB Bank family.
Social Roles of the Central Bank
hum the crisis period the RBZ engage Itself in Various social programs, for example empowering Citizens through the Mechanisation Programme. This was of great Importance fro something Individuals, although not all people were Involved and the way it was done through excess printing of money. The program raises social RBZ from the perspective of the Population awarded n the Agricultural sector. The RBZ Also Engaged Itself in the housing financing schemes, giving food vouchers two the poor and sourcing cars and perks for court Judges. Howeve, There ha Been debate around the manner in Which the bank ha traversed its monetary policy duties two usurp the fiscal and Other roles. The manner in Which this institution ha Sought two control the mediated public sphere through mostly unorthodox Means is said two garden fueled the crisis and ha created social Inequality as Their policies were in quasi format and not comfortable two cover the total Population But Rather the selected Few .
Central Bank and Financial Institutions
The Central Bank is at the top of all Financial Institutions and of course it is the regulator of all the activities in the financial sector. Howeve, the Central bank receiver proposals from the Various Institutions on the activities That Might need to ask the two taken Improve the sector and profit-ability of the Institution. Apart from the Central Bank’s influential role, Institutions garden Their Own Party two earner. According to Posen (2006), central banks can not count Wed banking supervisors or budgetary officials two two stick the straight and narrow, even if one Assumar That a politically independent central bank goodwill largely Pursue the right policy. Japan in the 1990s is a Particularly Salient illustration of The Danger of Lack of Coordination Between financial and monetary Authorities. Arguably, There was a three-way game of chicken Between the Bank of Japan, the Ministry of Finance, and the new Financial Services Agency That paralyzed policy for the second half of the 1990s.
Central banks are Not That Powerful Financial Institutions That Can ask Completely guided by unfavourable policies of the Central bank Because of imperfect information and the speed that Which Researches are made by central banks and individual Institution. Researches by individual Institutions are more efficient and faster than Those by the Central Bank Central bank Because broadcast Their research two cover the whole economy. So Hubble convinces Financial Institutions and Their Formulas two prove the central bank for approval and not only wait for the policies by the Central bank. Innovation is the only way in Which the financial sector religion on to Reduce transaction costs’.
Pressure Applied by International Organizations Such as the IMF and the World Bank and the introduction of new technologies garden forced two Authorities relax controls making the financial sector more Competitive and efficient in Many countries (eg Ghana and Sri Lanka) Whose financial Reforms garden Contributed two economic growth. Therefore for Zimbabwe Financial Institutions Hubble continue two engage in technology Invention despite tight policies from the Central bank. Public awareness Hubble Also ask for donations increase item two the number of participants in the sector. Lack of financial literacy Among the people and Lack of clear directions from the government the two financial market affect progressing efficiencies Furth, Piyadasa (2007).
Can ask an Important and Powerful Party of the central bank’s toolkit since it ha the ability two move financial markets, two enhance the predictability of monetary policy Decisions, and potentially two full Achieve central banks’ objectives Macroeconomics, Blinder et al (2008). This Means That if information is incomplete or slow Between the Central Bank and the whole financial system problems Arise making it Difficult two Achieve economic goals. The inability two meet economic targets goodwill affect the society as a whole economically and socially bothering.
A few Decades ago, Conventional wisdom in central banking circles held That monetary PolicyMaker Hubble say as little as Possible, and say it cryptically, Blinder (2008). Communication policy ha rice in stature from a two nuisances a key instrument in the central bank’s toolkit. As a result, the central bank’s Many garden Remarkably Become more transparent and garden started Placing Greater much weight Wed Their communications. The Reserve Bank of Zimbabwe, ha Been Communicating through presentation of monetary policy, magazines and newsletters and newspapers Among Other Methods in an effort two give information the two financial systems Wed. its policies. Howeve, it is the quality of the information That Also matters and Associated Implications.
Official statements, reports, and two minutes Appear garden of the clearest and mashed consis lit empirical effects Wed financial markets. The evidence on the impact of speeches is more mixed. But it, too, is Mainly Supportive of the idea That the central bank communication “create news.” Communication Can ask Divided Into “short-run” central bank communication and long-run “central bank communication depending on the scope and objectives hours horizon.
it is widely accepted That the ability of a central bank two affect the economy depends Critically its ability Wed Thurs Influence Market Expectations about the future path of overnight interest rates, and not merely Wed Their current level.
The Reserve Bank of Zimbabwe indicated specifically the guidelines ask for two followed by the banking sector, violation of Which was financial indiscipline. This was two ensure uniformity in the sector, so as two manage the crisis. Also it shows That the banking sector is well controlled and Monitored by the RBZ.
Source: Reserve Bank of Zimbabwe, Monetary Policy Statement, January 2009
whilst it is a good idea That the Central Bank controls and monitors the development in the financial / banking sector, it is Also worth it for two adjust and revise its rules and Regulation in the Earliest hours That allows Flexibility and Innovation in the sector. The RBZ policies are in place for a long time, Such strategies are not comfortable suit for a Developing innovative and high economy like Zimbabwe. The Zimbabwean financial / banking sector is Trying two races with Other nations to book a Competitive level in the international market. With increasing Globalisation There is Increased linkage Among nations as There are now Increased numbers of travelers, the banking sector faced by Hubble ask bothering Exogenous and endogenous policy guides.
Regulatory Framework for Non-bank Financial Institutions
The relationship Between the RBZ and Non-Bank Financial Institutions is one-sided as the forms is not Satisfied by the freedom They enjoy. According to the RBZ There is an absence of a well defined and comprehensive regulatory prudential supervision framework for the Zimbabwe Stock Exchange, Stock Brokers, Insurance Companies and Pension Funds and this ha significantly compromised Financial Stability. Illegal Transactions, indiscipline and Reckless disregard of rules and Regulation garden Been detected in the sector. There are no prescribed Educational credentials for registration of stock brokers. Hum the period under study mashed pension funds and insurance companies were not complying with the minimum prescribed asset Requirements of 35% and 30%, respectively. Hence the RBZ was calling for compliance.
The minimum capital requirement for Various Institutions were set as follows:
Source: Reserve Bank of Zimbabwe, Monetary Policy Statement, January 2009
While it was good two garden These minimum capital Requirements, Many companies failed to Comply and this automatically check indicate That the levels set were quite too high for the season. Any Reforms based Wed Such targets set are deemed inappropriate and Likely not ensuring Stability. The Central bank is two consult Various Organisations two reach an economic minimum capital Requirements, this ensures the smooth operations Among Institution. The RBZ Hubble Suggestions welcome from the public and Various economic agents apart from its research, monitoring and management tool kit.
Recorded Community Voices Capturing Experiences with the Financial / Banking Sector hum 2003-2009 in Zimbabwe:
“From long, I Have Developed trust with the bank, and everythings extra money I channelled it into my CBZ account. And There it was kept Safely, and for me it was a good spending Discipline as I was not always in town two with draw cash. I only Went there, after my money ha accumulated and need to buy a good asset with value. howeve, as time goes on, saving money not could bring development to me as the amount Remains insignificant over time, Including the interest Which was Almost nothing. Template, as years progress, Cues were now seen that the bank, it became harder and harder two with draw cash, simply it became harder two deposit cash as the return was zero. As inflation increase, public Cues increase item hum month end, so as with two Quickly draw cash before inflation does its job of value reduction. ”
“The crisis made me poor, all my money in the bank Which I saved for years was Reduced to nothing.”
“Companies were now paying people Twice a month, money ha lost its value.”
“It was profitable two invested in the shares, as the price was shooting day by day, But the economy was not growing.”
“The bank, became the source of corruption. Two with draw money, you may have to know somebody or you cue for the whole day.”
“hum the crisis period my bank not could meet the minimum capital requirement set by the RBZ and Hence it merged, Leading To The change in name.”
“I Survived through hedging, as keeping money in the bank proved To Be disinvestment. As soon as my pay is in the bank account, I draw with the money and buy foreign currency, Which in goodwill ration through the month . Signs of danger in the economy Could ask the detected Slowly Until It Becomes common knowledge to go for two major forex value of the money. “
“It started with schools asking for top-up fees everythings term. In thoughtfully schools are now robbing us, yet There was no increase item in the services They Offered Our two children. Then, my money seems not tested To Be enough for me and my family But I Have a good job and status. “