Harare — ZIMBABWE banks, through their association, have applied for approval from the Reserve Bank of Zimbabwe (RBZ) to convert some of the national payment systems --notably the Zimbabwe Electronic Transfer and Settlement System (ZETSS) and Zimswitch -- to allow for ease interbank settlements.

Apart from VISA cards, the Real Time Gross Settlement system (RTGS), cheques, debit and credit cards were rendered dud at the beginning of the year when a foreign currency-dominated multi-currency system was introduced.

To improve the settlement system among banks, the Bankers Association of Zimbabwe (BAZ) tendered an application for foreign currency-based national clearance system in March and expects a positive response from the regulatory authority by the end of this month.

John Mushayavanhu, the vice chairman of BAZ, said discussions with the monetary authorities had already started on how to convert the ZETSS, which caters for RTGS and cheques and other payment platforms, from local to foreign currency.

A local transfer and settlement system will make it possible for account holders to write cheques, do electronic transfers and conduct low-value transactions through automated teller machines and credit and debit cards in foreign currency.

"The discussions are going on well and we expect a positive response very soon," Mushayavanhu said.

"We want a situation where interbank settlement is done locally. It's just a matter of determining what each bank owes the other on a daily basis and then settling it locally without having to go via New York.

"The bank owing the other simply transfers money from its New York account to the other bank's New York account.

"Currently, if you want to pay United States dollars from bank A to bank B, that transaction has got to go via New York."

Under the proposed system, each local bank will be required to lodge its collateral with the RBZ in the form of back-up foreign currency reserves to cover systemic risk should one bank fail to cover its debit positions.

Logically, given the liquidity crunch currently bedeviling financial institutions, the monetary authorities will have to conduct a broad-based prudential risk assessment prior to approving the application as a safeguard measure to reduce market exposure to incidental grid-locks or liquidity shocks, particularly for cheque-based transactions.

The amount of collateral that each bank is obliged to pay depends on the size of transaction each bank normally handles or expects to handle in the outlook period.

Due to the high values involved, the failure of one bank to settle cheques can affect other banks resulting in a general system failure.