Reserve Money

Reserve money refers to currency in circulation and deposits with commercial banks as well as bank deposits to the same. The decline in reserve money growth entails that the country is at the centre of lowering inflationary pressures.[1]


The Reserve Bank of Zimbabwe (RBZ) said reserve money growth was well within the monetary policy committee (MPC)’s target of 15 percent in the first quarter of 2020, consistent with an average monthly inflation rise of 5 percent. The bank keeps the growth levels of reserve money within thresholds consistent with the monetary targeting framework, designed to fight inflation and exchange rate pressures.

There are different forms of money supply — reserve money, narrow money, broad money etc. But the most important indicator of all these is reserve money. It is also called as high powered money, base money and central bank money. All these names suggest that reserve money represents the base level for money supply or it is the high powered component of money supply. Other forms of money like broad money depend upon the volume of reserve money. Since it is mostly currency in circulation with the people, reserve money decides the level of liquidity and price level in the economy.[2]

The prognosis to maintain a tight monetary stance targeting reserve money growth not exceeding 15 percent by the end of 2020 is aimed at improving exchange rate stability as well as taming inflationary pressures, which are often linked to growth in money supply. In 2019, RBZ attributed the growth in money supply to subsidies on fuel, electricity, grain and Government expenditure.

Targeted Growth in Reserve Money

The Reserve Bank initially targeted reserve money growth of between 8 and 10% in 2019 to anchor inflation expectations and support the mono currency. However, reserve money increased by 103.3% from a stock of ZWL$3.2 billion in March 2019 to ZWL$6.4 billion, as at 31 August 2019. The increase was largely attributable to growth of credit to Government.[3]

During the 2021 Monetary policy the Reserve Bank of Zimbabwe (RBZ) announced that they were maintaining the conservative monetary targeting framework. The central bank said this will be achieved by reducing the quarterly reserve money growth from the 25% quarterly target in 2020 to 22.5% per quarter in 2021. The current stability in inflation and exchange rate needed to be safeguarded, maintained and sustained. The reserve money target of 22.5% was consistent with the targeted end of year inflation of below 10% and the projected 7.4% economic growth rate of the economy for 2021.

Updates on RBZ Reserve Money

In January 2020, Zimbabwe’s reserve money stood at ZWL$9.251bn and grew to ZWL$16.662bn on July 20 before coming down to ZWL$12.117bn on 28 August 2020, after the introduction of the Foreign Exchange Auction System. In September 2020, it had peaked again to reach ZWL$13.153bn, meaning it was likely to increase inflationary pressures.[4]

Reserve money increased by $2,2 billion to $17,6 billion for the week ending October 16, 2020, reflecting a rise in banking sector deposits at the Reserve Bank of Zimbabwe (RBZ), as the Government paid its workers.

This stock of money pertains to funds banks are allowed to hold at any given moment, which are readily available for purposes of lending or availing to clients and borrowers without negatively affecting the economy. The central bank has been keeping a hawk’s eye on liquidity, as it maintains a stranglehold on money rapid supply growth, which can upset the macro-economic stability brought about by exchange rate stability.

Banks are subject to requirements on the amount of cash reserves they must hold, as mandated by the central bank in order to maintain equilibrium between the needs of the economy and what banks can provide. According to the latest reserve money update from the central bank for October 2020, the stock of reserve money rose $2,1 billion while banks’ statutory reserves surged by a marginal $0,1 billion during the period under review.

A reduction in Government deposits at RBZ represents an injection of liquidity in the banking sector whilst an increase of deposits represents withdrawal of money from the banks, the central bank explained. The balance of $700 million increase in reserve money was due to the purchase of foreign exchange by the RBZ through banks for purposes of funding the Foreign Exchange Auction System introduced in June 2020.

Purchases of foreign currency by the central bank increase the amount of liquidity in the market, whilst the sale of foreign currency by the monetary authorities has the effect of withdrawing liquidity from the market. To ensure an economy remains healthy, the central bank regulate the amount of money in circulation. Influencing interest rates, printing money, and setting bank Reserve Requirement are some of the tools the central bank use to control money supply.

As a rule, the central bank mandate banking institutions to keep a certain amount of funds in reserve (stored in vaults or at the central bank) against the amount of deposits in their clients’ accounts. Thus, a certain amount of money is always kept back and never circulates. The stability in the exchange rate has also permeated into prices and inflation, with the latter remaining largely unchanged over the last two to three months while inflation has slowed down. Before the auction system and measures to keep liquidity on a tight leash were introduced. Zimbabwe experienced rapid increases in inflation, as businesses tracked constant changes in parallel market exchange rate, to which all prices were referenced.[5]

January 2021

  • Reserve money for the week ending 29th January 2021 increased by ZW$3.32 billion to ZW$21.93 billion, compared to its position last week.
  • The increase in reserve money largely reflected an increase of ZW$2.86 billion in banks’ liquidity at the Reserve Bank (RTGS balances), coupled with increases of ZW$424.93 million and ZW$37.70 million in currency issued and required reserves, respectively.
  • The rise in market liquidity was largely attributable to maturity of savings bonds held by banking institutions, which released liquidity into the market.[6]


  1. Oliver Kazunga, [1], The Sunday News, Published: 11 October, 2020, Accessed: 29 October, 2020
  2. [2], Herald, Published: 29 June, 2020, Accessed: 29 October, 2020
  3. [3], Bulawayo 24 News, Accessed: 29 October, 2020
  4. [4], Business Times, Published: 14 September, 2020, Accessed: 29 October, 2020
  5. [5], The Herald, Published: 29 October, 2020, Accessed: 29 October, 2020
  6. [6], Reserve Bank of Zimbabwe 2021, Published: 6 February, 2021, Accessed: 10 February, 2021