THE Reserve Bank of Zimbabwe (RBZ) recently published an update indicating that reserve money declined by ZWL1,4 billion to ZW16,1 billion as at the week ending October 23, 2020. The decline reflected a fall of ZWL1,5 billion in banks’ deposits at the RBZ.
This was mainly due to foreign currency sales to the market by the RBZ and liquidity mopping through issuance of open market operations (OMO) savings bonds.
Reserve money is an important indicator of money supply in the economy given that it represents the base level since it is the high-powered component of money supply.
As illustrated in the info-graph, the components of reserve money are (i) currency in circulation, (ii) Banking Sector’ Deposits with RBZ and (iii) Other deposits with RBZ. The currency in circulation includes notes and coins while bankers’ deposits represent balances maintained by banks in the current account with the RBZ (mainly for maintaining cash reserve ratio). Other deposits with the central bank includes deposits from multilateral financial instit
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