Impact of adopting the multiple currency system on banking sector confidence in Zimbabwe (2009 - 2013)

Abstract

“It’s all about confidence stupid. Every financial system depends on trust. We are in a full-blown crisis because investors and financial managers have lost that trust…” Samuelson (2008) The issue of confidence in banking is key to building a strong financial system. Evidence of the role of confidence dates as far back as the Great Depression of 1933 and more recently during the Global Financial Crisis, which saw depositors and investors question the soundness of the global financial system. In Zimbabwe, public confidence in the banking sector became a topical issue in the aftermath of the economic turmoil experienced in the period 2003 to 2008. Events leading up to the adoption of the multiple currency system eroded public confidence in banking institutions with the resultant reluctance by the public to use the formal banking system. With the adoption of the multiple currency system in 2009, restoration of public confidence became an area of common concern among key stakeholders in the economy. There is common agreement among stakeholders that the successful revival of the Zimbabwean economy is dependent on the financial intermediation role of the banking sector, which is dependent on depositor confidence. In view of the key role of the banking sector in the resuscitation of the Zimbabwean economy, the study sought to establish the determinants of public confidence and how these were affected during the period of economic turmoil. The study further sought to assess the impact of the currency reform measures adopted in 2009 on public confidence and to identify any shortcomings and possible areas of enhancement in policy. This was achieved through the conduct of a survey amongst a sample of banking institutions and banking sector regulators. The results of the study indicate that currency reforms were necessary to restore public confidence in the banking sector. However, according to research findings, the degree of restoration of confidence has been limited, largely due to a number of factors that remained to be addressed in the multiple currency era. In this respect, the study has made recommendations for further policy enhancements in the quest to restore public confidence in the Zimbabwe banking sector.