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life the money market and ignite the lender of the last resort functionality.
RBZ Governor Dr Gideon Gono said the efficiency of the lender of the last resort is being negatively affected by the absence of tradable instruments on the market.

In his monetary policy statement last week, Dr Gono said the RBZ will issue out a paper which would be acceptable for collateral on the overnight window, security for inter-bank transactions, prescribed and liquid asset status.

“Work is under way to explore ways of implementing this idea, and the market will be advised in due course.
“For the purpose of transparency, the RBZ would not handle the funds raised from the issuance of bills. Instead, the funds would be held at the guaranteeing institutions,” Dr Gono said.

“The RBZ would also put in some funds towards the pooled fund.”
He said the decision to award accommodation will be done by a nominated committee, comprising three members from the Bankers’ Association of Zimbabwe, three from the underwriters and two from the central bank. This development will see any institution that is experiencing liquidity challenges accessing funds from the pool at agreed interest rates.

Once banks have got a market instrument it means they would then be able to undertake inter-bank transactions, secure overnight accommodation, RTGS, Zimswitch and clearing house transactions.
The reactivation of commercial paper, notably bankers’ acceptances and paper for institutional investors, would stimulate activity in the money market, provide depth for market and increased lending to the private sector.

It is presumed that the fund will be self-financing with lending to banks experiencing shortages being undertaken at proposed rates of around 10 percent.
Dr Gono said one of the major functions of the central bank is to foster liquidity, solvency and proper functioning of the country’s financial system and one way of ensuring this is to avail liquidity through the lender of the last resort facility.

The Government last year availed US$7 million to the RBZ for the lender of the last resort function and it was opened in February this year with acceptable collateral being Deeds of Transfer on immovable property.

Dr Gono said since the inception of the facility no drawdown has been made largely due to the complicated nature of the collateral, which has got other inherent costs, involving evaluation and registration.

Prior to 2009, the Reserve Bank played the lender of the last resort function through the intra-day facility and through the overnight accommodation to banks experiencing short-term liquidity challenges.
Banks were able to provide the required funds due to its ability to create money.