Bank of Zambia Circular 04/2002: Conversion of Commercial Banks' Foreign Currency Statutory Reserve Balances from Kwacha to Foreign Currency

.. ..., r , . , :..c; BANK Of ZAMBIA OFFICE OF THE DEPUTY GOVERNOR -OPERATIONS r' i, t: March 28, 2002 .i CB Circular No. 04/2002 ~".. .. ,0.," To: ALL COMMERCIAL BANKS f . , i, CONVERSION OF COMMERCIAL BANKS' FOREIGN CURRENCY STATUTORY ~: RESERVE BALANCE FROM KWACHA INTO FOREIGN CURRENCY !,; . ; In line with the measures announced by the Honourable Minister of Finance and National Planning in this year's budget to reduce the cost of commercial bank credit particularly to the agriculture sector, the Bank of Zambia shall convert 100 percent of the foreign￾currency statutory reserve balances held by commercial banks from kwacha into foreign currency. To minimize the liquidity impact of this policy change on the money market and to ~: enable commercial banks make necessary adjustments, the conversion will be done in ; four equal tranches. The fIrst conversion will be effected on 8 April 2002 based on the l.. .'" Wednesday 3 April 2002 foreign deposit liability position. Compliance with the f-~' statutory reserve requirement on the outstanding foreign currency deposit liability 1:; between quarters will be reserved in kwacha as before. The implication of this policy change is that, in order to comply with the statutory reserve requirement on foreign currency deposit liability, commercial banks shall maintain two separate statutory reserve accounts over the conversion period, one in actual foreign currency and the other in kwacha as before. ,- In order to facilitate the smooth operations of the foreign currency statutory reserve ':0' accounts the following conditions shall apply: :

1. All transactions shall be concluded in United States dollars.
2. The standard foreign exchange settlement conversion of2 (two) working days shall apply when commercial banks are making adjustments to their foreign r currency statutory reserve accounts. , Bank Square, Cairo Road, P.O Box 30080, Lusaka /0/0/. Zambia TeI:260-1-226844. Fax: 260-/-237070,emaiI:amwenda@bozozm

.. . j i-j 3. Mode of settlement: All transactions shall be settled by way of Telegraphic Transfer. The Bank of Zambia shall not allow settlement by cheques or drafts. The details of the Bank of Zambia account on which all transactions relating to statutory reserves denominated in foreign currency (United States Dollar￾USD) shall be conducted are as follows: [, Beneficiary Bank: CitiBank f.: 111 Wall Street New York, N.Y. 10043 .' USA SWIFT Code: CITruS33 ".. /' .! l: Favour: Bank of Zambia lc./ ~' Account: 36999653 l 4. Each party shall bear own transmission costs. f~ ~ ' 5. Upon completion of the conversion, penalties on foreign currency statutory , reserve account shortfalls shall be levied in kwacha equivalent at the prevailing Bank of Zambia mid-exchange rate. Kindly note that transactions relating to statutory reserve balances held in foreign currency will be handled by our Finance Department while those involving kwacha will be effected by Banking, Currency and Payment System Department as before. Commercial banks that do not have statutory reserve accounts denominated in ~ " foreign currency should contact Finance Department for modalities regarding the opening of these accounts. l ,- , ;.:". O) to;! .Find attached a modified "Commercial Banks' Weekly Return of Selected Assets and , ... ~: Liabilities" and an Explanatory Note which illustrates the computation of the statutory reserve ratio on the foreign currency deposit liability during the conversion period. Kindly also note that the modalities regarding the conversion of foreign-currency statutory reserve balances from kwacha into foreign currency shall be subject to review r whenever deemed necessary. t ., For further clarifications, kindly contact Director -Financial 'Markets Department, ~'~ telephone No. 225008 and facsmile 221189. r P Dr b M ;'enda Deputy Governor -Operation , 2

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' EXPLANATORY NOTES FOR THE ATTACHED RETURN
Suppose Bank A has a deposit liability of USD 62,648.3 thousand as at Wednesday 27
March 2002.
.The minimum statutory reserve requirement on USD 62,648.3 thousand is USD
9,397.2 thousand, (Item 12). That is, 15 percent ofUSD62,648.3 thousand
f'~ .25 percent of USD 9,397.2 thousand which is equal to USD2,349.3, (Item 12a)
tJ thousand shall be converted into US dollar statutory reserves in four equal
tranches starting 8 April 2002.
.USD2,349.3 thousand shall be held constant and subtracted from the full
minimum statutory reserve requirement (Item 12) between quarters. Th~
:, , remainder (item 12b) of the statutory reserve requirements will be reserved in
,; kwacha.
c' The quarterly conversion profile of the statutory reserve balances held in kwacha into
t foreign currency as illustrated in the modified return over the conversion period is as
follows
t': 00
f' Foreign Currency Balance
1st quarter = USD 2,349.3 thousand
2nd quarter = USD 4,698.6 thousand
3rd quarter = USD 7,047.9 thousand
4th quarter = USD 9,397.2 thousand
Note that all commercial banks will be expected to comply in foreign currency at the end
of the conversion period January 2003. In the modified return attached herewith (Item
,.. 12b), this would mean that any excess or shortfall on commercial banks' statutory reserve
l' account will have to be complied with in US dollars.
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