New banknotes on cards
By Lincoln Towindo
The Reserve Bank of Zimbabwe (RBZ) will soon introduce a new set of higher denomination banknotes to increase physical money supply, curb cash shortages and improve transacting convenience.
Authorities have approved the introduction, into circulation, of new $50, $100 and $200 banknotes this year.
The $50 note will be introduced first, while plans to introduce the other notes are still in the works.
Designs of the new $50 note are awaiting the President’s approval before printing can commence.
Zimbabwe has $2, $5, $10 and $20 notes in circulation.
Transacting using these notes has become cumbersome, with huge wads of cash now required to complete small transactions due to inflation.
Cash shortages have triggered queues at banks and an illegal market where premiums are charged to convert electronic money into cash.
The shortages have also created a multi-tier pricing system, where prices of a single product differ depending on the customer’s mode of payment. The introduction of the new notes is expected to enhance convenience to the transacting public and eliminate the illegal cash market.
Stability of the Zimbabwe dollar over the last six months has reinforced authorities’ confidence that the value of the new notes will not be wiped away by inflation.
Inflation has been falling gradually since mid-last year, following a raft of interventions by authorities to protect the value of the local unit from speculative behaviour in the market.
Currently, around $1,4 billion in cash is circulating, up from around $400 million a year and half ago.
RBZ governor Dr John Mangudya did not respond to questions while his deputy Dr Kupukile Mlambo said he was on leave.
A member of the RBZ Monetary Policy Committee, Mr Eddie Cross, said the new notes will be introduced “shortly”.
“The only new note which is due to come in shortly is the $50 note and I’m not certain when that is going to be available but it is in the process of preparation,” he said.
“There are already plans to introduce some higher denomination notes this year.
“Some time ago we made a decision in the MPC to introduce new $200, $100 and $50 notes.
“I understand that this is being dealt with by the governor working with the President because the President has to approve the designs and everything else. But I understand that the $50 note will be available early in the new year.”
Mr Cross said the new notes will be drip-fed into circulation throughout the year.
It has also been learnt that the central bank is mulling decommissioning small denomination coins, whose value has been wiped by inflation with most retailers now refusing to accept them.
Mr Cross said soiled notes will also be gradually removed from circulation.
“What I am concerned more about is the proliferation of spoiled notes which are unfit for distribution and use,” he said.
“I think the Reserve Bank should start removing them from the market and replace them with new notes.
“In terms of decommissioning it means we should decommission all of the coins for example and replace them. The difficulty with all of that is having adequate physical currency to replace them, and as long as we have got shortages of cash in the marketplace, it will be difficult. So it’s on the agenda and it’s being discussed but there are logistical problems.”
Mr Cross said the $1,4 billion currently in circulation represents a small percentage of the money in the economy.
“There are much more US dollars in circulation than Zimbabwe dollars.”
A lecturer in the Department of Economics at the University of Zimbabwe, Mr Edgar Muhoyi, said higher denomination notes will improve transacting convenience.
“What higher denomination notes will do is that they will increase transacting convenience,” said Mr Muhoyi.
“For example the price of a loaf of bread is around $90 while the highest denomination we have is the $20 note.
“This means that one would need not less than five $20 notes to buy a loaf of bread.
“But if we have higher denomination notes like a $50 note, then such a transaction can be done using just two notes.
“The other thing the RBZ should look at when they introduce these higher denomination notes is to increase the individual withdrawal limits so that one does not go to the bank regularly.”
He said the shortages should be addressed by injecting more physical cash into the market.
“In my opinion, the issue of cash shortages is not about higher denomination notes; it is about the amount of physical cash in the economy.
“Money supply in the market has not been adequate and this will not be addressed by injecting higher denomination notes.
“This can only be addressed by the quantity of money in the economy.
“The RBZ should inject a proportion of money which is equivalent to a certain percentage of the country’s Gross Domestic Product into the economy and this will be a better way of addressing the cash shortages.” The Sunday Mail