It seems Zimbabwe is good at creating unheard of semantics, In November 2016, Zimbabwe began issuing $2 bond notes, purportedly baked by a US$200 million loan from the African Export-Import Bank.
This was officially an incentive for the farmers by the way! Although we were all encouraged to use them.
learned as we are, we understood our local challenges and accepted, lo and behold! We now have a new set of currency this time we aptly dubbed “Domestic Nostro Accounts”.
What the heck is that?
Yours truly till today is still struggling to understand the concept behind domestic nostro account and why on earth we have such a creation.
A Nostro account is a bank account that a bank holds with a foreign bank in the domestic currency of the country where the funds are held and cn be. used in any other international domain. A Nostro account is used to facilitate the settlement of international trade and foreign exchange transactions.
Surprisingly, our hard working civil servants who have been demanding foreign currency so that they can save their earnings against rampaging inflation got a new currency creature all together, a first in the world.
The government gave them a domestic nostro accounts, whatever it means, it is a nostro account for domestic transactions.
It seems the fear was that the fiscus had no enough hard cash to dispense to the millions of civil service hence it was logical to give them plastic money of the international value.
However, most payments that have been made to civil servants to date have been RTGS balances liquidated at bank rate, meaning they simply got an increment to their balance.
Now there is so much fuss from the government encouraging civil servants to open up these seperate “nostro accounts” to recieve their allowance, strangley some local banks have already opened automatic nostro accounts for a their civil servants, as they are excited about the “nostro opportunity”
Infact its the banks that will be the biggest winners in this scam, if at all they recieve nostro balances, they are happy to liquidate them at the prevailing forex rates and they retain actual value.
The biggest problem here in Zimbabwe is the trust issue.
Noone trusts the Zimbabwe finance system or those running it and how they come up with new money in “domestic foreign accounts”.
The intention of these accounts were meant to make the civil service believe that they will be getting some form of foreign currency against their paltry pay.
Most civil servants in Zimbabwe are earning way below USD$30 so the USD$75 initiative was a great welcome.
The idea however is entangled with ill intent and duplicity as it does not represent what it says on paper
The recipients were clearly notified they will not be able to withdraw the funds.
Meaning they can’t attain the actual value of the currency and can only liquidate via the lowly pegged government forex rates.
This already means the actual value of the money has been diminished by the system as government gives and takes at the same time.
The biggest problem with this whole system is that it lacks sincerity and honesty in its application.
The struggling civil servants have been sold a dummy into believing that they can salvage some value through the new methodology, alas its a just pie in the air.
Life has remained hard for them as they can create any savings from the inititiative neither can they access the real value of the payment.
The so called domestic nostro cards are there to give an artificial feeling of nostro value which is locally liquidated.
The biggest question now is why even nostro in the first place?
Why are we wasting forex printing these rather useless new domestic nostro bank cards? Especially if the purposes was meant to be a 3 months cushion allowance.
It won’t be surprising to note that the cushioning allowance will go beyond 3 months which would be greatly appreciated if at all it does, but by design it was not so
The government must have announced a salary increment to cushion its civil service and avoid the temptation of misrepresenting and focus on the real issue.
The move might have been inspired by fear of increasing money supply of RTGS into the system hence hiding behind new currency might have been smarter.
This however does not cure the effect of broad money supply.
Inflation is already spiraling in Zimbabwe as millions have already been injected.
The civil service salaries have been more than 70% of the national budget even a mere $75 at the current bank rate multiplies into hundreds of millions in a country with little production.
More money chasing few products shoots national inflation so this is still an inevitable catch 22.
However, the issue remains, there was no compelling need to introduce fake USD value in domestic nostro accounts.
Such a move fly in dishonesty and duplicity without solving the initial problem.