Central Banking System In Zimbabwe

This assignment discuss about the central banking system. Central bank also known as the reserve bank, is an independent institution that manages a state’s currency, money supply and interest rate (repo rate), it also supervises the commercial banking system and operate as monopoly (the only firm that has total control over the sector) and act as a banker to the Government. Example of this is the South African Reserve Bank (SARB) as it satisfies all of the above conditions.

Most reserve banks like the Reserve bank of South Africa, SARB has the primary purpose, which is to achieve and maintain price stability and sustainable economic growth in their states. Central banks are responsible for the following: controlling the money supply, administers

Without indispensable supportive reserves, The RBZ was forced to create money by its state and in such excess as to fuel a horrible hyperinflation was experienced. The state simultaneously enforced lots of functions and duties which were in conflict with the ones of the reserve bank, which included the buying and distribution of agricultural and farm implements, the buying of cars for politicians, judges and others as well as purchasing houses for judges and senior military personnel. The Reserve Bank of Zimbabwe was hence placed to a state of almost being insolvent, and was unable to manage money supply (but effectively was forced to increase such supply excessively, with commensurate economic prejudices).after the shocking experience the value of the Zimbabwean currency was destroyed as it was void and was devastated by the hyperinflation

This happened because the state and the reserve bank of the country failed to protect the currency of the country, thus it lost its value. The question is “how does these reserve banks protect the value of their countries’ currencies?” This is where the monetary policy comes in.

The central bank protects the currency of its state through the implementation of the monetary policy.Through its monetary policy, a reserve bank can affect the demand in the economy, but it cannot affect supply as it has no power. When growth declines, the reserve bank may lower the repo rate. As this monetary signal works its way through the economy, all sorts of loans’ rates fall. After this demand is more likely to be stimulated and this helps the economy to return to its potential growth