Economist, @Dr Lubinda Habaazoka writes
About the issuance of larger Kwacha denominations
It’s important to note that the new currency will have the same value as the old one. This is not the first time Zambia is changing notes, and from my experience, when two different kinds of notes are in circulation, people can easily be swindled due to the lack of familiarity with the new notes. So, please study the notes before they are released.
When the new notes are issued, the old notes will still be legal tender, and it will be a crime for anyone to refuse to accept either the old or new currency until the government officially phases them out.
So, why did BoZ decide to introduce larger notes?
The characteristics of good currency are that it should be easy to carry and easy to make change. With inflation and rising prices, you may have noticed that the K50 and K100 notes were the most commonly used. To help us carry larger amounts of money in our wallets, the BoZ has introduced two larger notes, allowing us to transact more easily.
What happens next?
Well, a dollar today is worth more than a dollar tomorrow. This means that, depending on inflation rates in the future, we may have to introduce larger notes again to simplify transactions. This could happen in 5 or even 10 years, depending on the rate at which prices rise. There is also the possibility that we may rebase our currency in the future by removing zeros.
How do we slow down inflation?
We need to build a robust export-oriented economy that brings in foreign exchange, allowing us to maintain very low inflation and avoid currency depreciation.
Will the new notes escalate inflation?
Ideally, no new currency-related inflation is expected because the new and old notes will have the same value. However, from a psychological standpoint, the K500 note will have the same psychological value as the K100 note, meaning the utility (satisfaction) associated with receiving K100 will decrease, as people will prefer to receive the higher K500 note.
Is it a good move to change the currency?
This is a costly exercise, as printing new money is expensive. However, BoZ will make some profit from the exercise through what is known as seigniorage. Therefore, the government is expected to make some revenue from this process. However, this could trigger some inflation, so it is advised that the government reduces its reliance on this approach.
Thank you. 🙏🏿
Insightful points but I would like to pose a question or two to the Good Doctor of Economic.
1. Of the money that is currently in circulation can he put a number on the exact amount; that at any given moment BOZ has in circulation?
Hypotheyically, if in the change the amount is reduced to address this. Would it not be a measure to address what he percieves as “an inflationary effect?”
2. We have a meeting this week, on monetary policy. Does he know the conclusion and outcome of that meeting? The news for the currency change instigated not by BOZ but uncouth people seeking to cause a stir in the market. The response and public announcement was just a reaction.
So is it possible to say, the Policy meeting would have come out with measure to address the inflationary anticipated, before the release of the new notes?
3. Earlier in the year, government announced fiscal policy changes that have been implimented as the start of the year, and others we will see the end of next month.
When you read the two. New currency, and the attempts to broaden the tax base. Yes, there will be a cost push factor to inflation, but this may force individuals to be productive. Zambians love their lifestyle. And can be creative to maintain it. Dont see productivity as a means to sustain that lifestyle? I also see a shift from the use of cash, to electronic modes of payment. I raise this point, and ask that you connect it with the intial point I made (BOZ/money volume). What is your prespective?
That aside, great write on your take, and speak from a professional point of you. Very balanced.
Whenever the ugly looking Economist opens his mouth its Childish economics which comes out. Ba Russia please, stop training Economists. Look at what you’ve made this village become now. The hippo is all over the place ranting funny funny theories which can never happen practically