ABOUT US$300 million is lying idle in Real Time Gross Settlement balances, in the absence of investment instruments on the money market. Reserve Bank of Zimbabwe Governor Dr Gideon Gono, in his Mid-term Monetary Policy Review Statement, said RTGs balances had risen from US$120 million in February this year to US$300 million in June.

"The lack of investment instruments on the money market has forced banks to hold significant balances either in cash or RTGs accounts, reflecting the lack of activity in the money market," he said.

Banks have been calling for the issuance of Government paper in the form of Treasury bills, which can also be used as collateral in inter-bank market and the lender of the last resort function.

Finance Minister Tendai Biti in his Mid-Term Fiscal Policy Review Statement announced Government's intention to issue short-dated instruments.

The issuance of Government paper will resuscitate the non-functional money market and re-activate the inter-bank market while at the same time improving fiscal cash flow challenges.

With Government paper, Treasury would be able to raise funds to finance national projects, such as infrastructure.

Zimbabwe's infrastructure is lagging 40 years behind due to lack of funding and requires an estimated US$14 million.

In inter-bank trading, banks deal with one another directly, exchanging different currencies.

Once there is a funding instrument, it means banks would then be able to undertake inter-banking transactions and secure overnight accommodation.

Overnight accommodation reduces exposure to other banks. Banks are currently lending out limited amounts to avoid exposure and maintain certain amounts as buffers.

Meanwhile, the Government has converted the outstanding statutory reserve obligations of the central bank, amounting to US$83,4 million into stocks of two, three and four years.

The Government paper will attract rates of 2,5 percent, 3 percent and 3,5 percent respectively on March 1,2012.

Dr Gono said the first coupon payment on the Government stocks of US$1,2 million was made on July 2, 2012.

Government paper can also be used as collateral as the lender of the last resort function. A functioning lender of the last resort also plays a significant role in the provision of liquidity to banks.

Banks have been experiencing short-term liquidity challenges and the presence of a stronger lender of the resort would restore confidence in the banking sector.

The Government last year made available US$7 million to the central bank for its function as the lender of the last resort. It was opened in February this year with acceptable security being deeds of transfer on immovable property.

Minister Biti also announced in his 2012 National Budget that Government and an international financial institution would unveil a US$100 million fund to capacitate the central banks as the lender of the last resort and inter-bank market trading.The regulator is yet to come back to the market with details of the fund.