Economic crisis worsens as Reserve Bank suspends RTGS

By Alex Bell
03 October 2008

Just hours after Zimbabwe’s dollar crashed to record lows in the face of the cabinet deadlock, the Reserve Bank announced on Thursday it was suspending the use of Real Time Gross Settlement (RTGS) with immediate effect.

The announcement by Reserve Bank Governor Gideon Gono to suspend RTGS has plunged the country’s banking system into a fresh crisis, after a move to put more cash into circulation backfired this week. The introduction of higher denomination bank notes, as well as the increase in cash withdrawal limits on Monday, saw chaos on the streets as tens of thousands queued to withdraw much needed funds. The move also prompted rampant price hikes, made worse by the collapse of the Zimbabwean dollar on Wednesday. The currency crashed to more than half its value as a result of the political stalemate between the country’s rivals over the distribution of cabinet posts.

Gono on Thursday attempted to justify the RTGS suspension by saying the system is “being used for illicit foreign exchange deals,” and by businesses “to overprice their goods and services.”

“We have no option but to take this drastic measure in order to maintain sanity in the financial system,” he said.

Amid Zimbabwe’s economic meltdown and resulting severe cash shortages, the RTGS system was a relatively reliable method of payment for most transactions, as well as a method for getting much needed hard currency. Gono managed to add sting to the announcement by suggesting the public make use of cheques and debit cards to make payments – with debit cards only useable in a handful of supermarkets and cheques taking financially critical days to clear.

The Reserve Bank will continue to benefit from the reliability of the RTGS system, with Gono stating the system would continue to be used to send payments to the Reserve Bank. Businesses and individuals would also continue using RTGS to pay taxes and to make payments to government accounts held at the Reserve Bank. But ordinary Zimbabweans will suffer even more.