Last week I wrote a post illustrating how Zimbabwean households have vast sums of savings stashed in western tax havens and banks.
According to the US Bureau of Economic Research, Zimbabwean savings in just tax havens could exceed 60% of our GDP. This does not include savings in foreign non-tax havens, investments in equity, gold holdings or savings hidden in sophisticated financial vehicles off-shore.
These are huge off-shore savings that could come in handy in leveraging home biased reinvestment in Zimbabwe by Zimbabweans in future.
However, the advent of COVID19 is cooling down the global economy and many analysts fear this could lead to an economic downturn the magnitude of the Great Depression, if the lockdown is prolonged like Bill Gates is advocating.
This presents a huge threat to this Zimbabwean treasure chest in foreign banks because of a new concept known as BAIL-IN.
What Is Bail-in
After the Greek crisis, the EU came up with BAIL-IN resolutions that mandate depositors and creditors in their financial system to lose a portion of their funds or savings to rescue distressed EU financial institutions in times of economic crisis, to prevent contamination and collapse of the financial system.
In many ways bail-ins are how many Zimbabweans and foreign investors lost their local and foreign currency savings in Zimbabwe in 2008.
It’s important for us as people to note that bank deposits are categorized as loans to banks, which means such funds are susceptible to bail-ins.
More importantly, in most nations, the general trend with BAIL-INs is nations will target funds from foreigners and the richest members of society first, to rescue their banks. If the US depression is anything to go by, foreigners and the richest citizens at the time were taxed up to 96% of their income to save the American economy.
So how do people recoup their lost savings. Usually, a fraction of the lost savings can be recovered by depositors receiving equity in the institution that they have bailed-in. Meaning those who lose their funds will become investors in the foreign nation to keep its institutions standing.
Meanwhile, the same Zimbabweans have no institutions in their own country because they didn’t invest in them......the irony.
The moral of the story is Zimbabweans risk losing their savings in British, French and Dutch tax havens and foreign banks if the global economy crashes in a manner that requires their banks to be bailed-in.
Rutendo Bereza Matinyarare.