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Who Should Pay for Cash Crisis?
Vote Muza, Financial Gazette (Harare)
January 17, 2008

http://www.fingaz.co.zw/story.aspx?stid=2026

Harare - The current cash crisis gripping the financial sector that has persisted for the past two months without any sign of relenting calls for discussion in order to find any legal implications be it on depositors or banks.

To start with, I studied the banking statutes, and that is to say the Reserve Bank Act as well as the Banking Act to explore the true position of the law as regards rights and obligations visa vis banks and their clients.

The Banking Act did not provide much help since it does not spell out the duties of banks towards their clients.

However, the Reserve Bank Act does provide some insight into its responsibilities towards other banks and their clients.

Thus, some key functions of the Central Bank are to "foster the proper functioning of the Zimbabwe's financial system", and to provide for the "smooth operation" of the payment system.

Looking at the nature of the cash crisis, how it has unfolded and the manner in which prescribed solutions have failed to arrest its tenacity, one is left in no doubt that the Central Bank has failed in one its it's uppermost duties, and that is to "foster the proper functioning", of our financial sector.

Rather than being "proper"- meaning that the financial system among many other things must be convenient to the public, many have evidently lamented the excruciating experiences that have been brought to bear on depositors desperate for their cash who have had to endure long and winding queues in oeder to access their cash.

Such cash being required for their day to day requirements, and meeting other basic responsibilities like paying school fees. On the same note, the payment system can not presently be said to be "smooth" as is dictated by section 6(e) of the Reserve Bank Act. Rather, it has been very rough as evidenced by the numerous queues forming at banks that appear to be growing longer by the day.

In addition to these statutory responsibilities of the Reserve Bank towards banks and depositors, the common law also provides for the nature of the relationship between these parties.

But to understand this relationship better, it is paramount that a banker be defined. A banker is a dealer in money and credit in all their forms. As, the ordinary trader lays in a stock of goods to meet the requirements of his customers, so the banker accumulates money and rights to money in the shape of cheques and bills of exchange, and on that basis creates credit to supply the needs of trade and industry.

With the aid of their extensive branch systems, and their reputation for stability, banks collect large and small deposits, which would otherwise remain unproductive in the hands of individuals.

By lending out these sums to be used in the development of legitimate enterprise, the baker confers a real service on the community and at the same time he engages in profitable business.

In terms of common law, the banker is not in a position of trustee of the money deposited with him. The basic relationship is that of debtor and creditor, but with the proviso that whereas an ordinary debtor has to repay the whole or any part of the amount due at any time on the customer making the necessary demand.

Therefore, when millions of depositors who daily queue for some of their money fail to get it, then by law, such banks who default will be in breach of contract. For this breach of contract, it is possible for a client to sue for payment of the sum deposited in whole or in part.

However, this proposition may in reality just be academic since the overall circumstances of our economy and judicial system make the launching of such a legal suit an insurmountable task. This leaves depositors with no remedy other than to pursue other legitimate means of protest.

The onus is therefore on the RBZ and other players in the financial sector to devise lasting solutions to the on-going cash crisis that is obviously causing unbearable inconvenience to the public without rank or status.

I believe, as it everyone else should that these cash shortages are not beyond solution as if they are a natural calamity beyond the control of humankind.

A holistic, honest assessment of this crisis needs to be urgently undertaken in order to prescribe a lasting solution so that our financial sector does not lose its credibility that is fast being eroded with each day that passes with no action being taken.

The financial sector is the backbone of every modern economy. It is delicate and if mishandled it has the potential to ruin the entire fabric of an economy.

Most importantly, depositors who contribute immensely to the well-being of this sector need not have their confidence eroded for when that occurs, the seed for the collapse of the financial system would have been planted.

Amidst any crisis, the effectiveness of leaders is judged by their promptness to meet the public's expectations in addition to being constantly in touch with them to report about measures being taken to address the challenge.

Vote Muza is partner at Muza & Nyapadi Legal Practitioners. Email: muzalaw@yahoo.co.uk

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