HARARE – Depositors with small bank balances and pensioners whose savings were wiped out by currency changes last year will be compensated from a US$150 million fund, finance minister Mthuli Ncube said on Thursday.
Ncube last year re-introduced the Zimbabwe dollar, and removed its 1:1 pegging to the United States dollar. The local currency tanked, wiping out billions of dollars in depositors’ balances.
The value of the local currency was initially determined by interbank activities before the adoption of the Dutch weekly foreign currency auction system, which has stabilised the exchange rate at around 1:80.
The compensation will be limited to depositors who had small balances of US$1,000 or less.
Announcing the 2021 national budget on Thursday, Ncube said: “As part of a broader reform process under the Transitional Stabilisation Programme, the government through the central bank introduced a market-determined exchange rate through the Monetary Policy of (SI 33 of 2019) 20 February 2019.
“This entailed transition from an exchange rate of US$1:RTGS$1, initially to US$1:RTGS$25 and thereafter determined by the interbank market activities.
“This transition resulted in currency losses to small and vulnerable households with deposits less than US$1,000 in the bank. The movement in the exchange rate from US$1:RTGS$1 to US$1:RTGS$25 resulted in a loss for such depositors.
“Therefore, the government has made a decision to compensate the small and vulnerable depositors who had US$1,000 and below for the exchange rate movement loss from US$1:RTGS$1 to US$1:RTGS$25, with resources equivalent to US$75 million. The resources will be administered by the Deposit Protection Corporation.”
Ncube said pensioners were also similarly affected by the transition.
“They too will be compensated with resources equivalent to US$75 million, which will be co-managed by the government and the Insurance Pension Commission. This arrangement excludes recommended compensation under the Smith Report.”
He said the implementation of a previous compensation framework for pensioners for losses suffered before 2009 was also being pursued. The government adopted recommendations of the Justice Smith Commission of Enquiry on Pensions and Insurance which concluded that insurance policy-holders and pensioners should be compensated for loss of value suffered as a result of hyper-inflation in 2007-8 and the country’s adoption of a multi-currency system in 2009.
“The Commission of Inquiry’s recommended compensation framework for loss of value suffered during the pre-2009 period was slowed down by the 2019 currency reforms. However, IPEC has registered significant progress on implementation of the compensation schemes in response to 2019 currency reforms through ensuring an equitable allocation of revaluation gains arising from currency reforms,” Ncube said.
The government faces a flood of financial loss claims after the High Court in May ruled that fiscal and monetary changes announced by the Reserve Bank of Zimbabwe on October 1, 2018, including a 2 percent tax on money transfers and conversion of account balances into RTGS “manifestly violate the right to property” and are invalid.
Exchange Control Directive RT120/18, which was contained in Statutory Instrument 109 of 1996 issued a few days later on October 4, caused the collapse of the surrogate bond note currency on the black market even as authorities said the bond note and electronic dollars would remain officially pegged at 1:1 to the United States dollar.
The move wiped out billions of dollars in savings and caused the collapse of pension funds.
Justice Happias Zhou of the Harare High Court said the apex bank should have preserved all balances in United States dollars, with its directive affecting only future transactions.
“It is offensive to any sense of justice that a person who holds money in a bank can wake up on any day to be told that his money means something else different from what it has always been. This drastic deprivation of existing rights is not what is contemplated by section 317 of the Constitution of Zimbabwe as constituting regulation of the monetary system, protecting the currency of Zimbabwe and implementing monetary policy,” Justice Zhou ruled in a devastating 17-page judgement which the government has appealed.
