Tuesday, April 11, 2017

Zimbabwe Central Bank To Accept Goats, Cows, TVs, Fridges As Collateral

File under: Neo-Keynesian Madness

Commercial banks in Zimbabwe will soon be compelled to accept livestock such as cattle, goats and sheep as collateral for cash loans to informal businesses under a new law presented to Parliament Tuesday, reports Bloomberg.

Under the Movable Property Security Interests Bill tabled for debate by Finance and Economic Development Minister Patrick Chinamasa in the House of Assembly, the Reserve Bank of Zimbabwe will compile and administer a collateral-security register in which small-business operators and individuals can register their movable assets as security for credit.

Vehicles, television sets, refrigerators, computers and other household appliances will also become acceptable as collateral once they are evaluated and registered in the central bank’s register, according to Chinamasa.

“As minister in charge of financial institutions, I feel there is need for a change of attitude by our banks to reflect of our economic realities,” he said. Banks are “stuck in the old ways of doing things and failing to respond to the needs of our highly informalized economy,” he said.

This is going to be interesting since the country has mainly used the dollar since economic mismanagement and runaway inflation rendered its own currency worthless eight years ago. 

Not surprisingly, at the end of the runaway inflation period a collapse in the central bank created business cycle occurred.

.As Bloomberg correctly notes a liquidity squeeze ensued. The cash crunch has become so severe that banks are now limiting customer withdrawals.

So one has to ask where is the central bank going to get the funds to finance goat-collateralized loans? Are we talking about a law that is calling for US dollar loans with dollars that aren't available or are we talking about a new round of Zimbabwe printed dollars?

Either way, it is policy not in touch with reality that will intensify the suffocation of the national Zimbabwe economy.

There really needs to be a Ludwig Erhard of Zimbabwe to put the country on the road to free markets and prosperity.


(ht Zero Hedge)

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