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. 🙏🏿