HomeBusiness DigestBankers advise against printing small notes

Bankers advise against printing small notes

Ngoni Chanakira

BANKERS say government is “wasting money” minting and printing current denominations because they are now “too small” given the diminishing value of Zimbabwe’s dollar, ca

used by hyperinflation.

In separate interviews this week, the bankers recommended that higher denominations be introduced by the Reserve Bank of Zimbabwe (RBZ) and the $5 coin, $10, $20, and $50 notes be immediately removed from the financial system.

The sentiments come amid revelations that Fidelity Printers (Pvt) Ltd, an RBZ subsidiary, is printing $1000 notes, which will only be introduced at the end of the year. At the time of going to press the RBZ had not responded to written questions sent last Friday seeking a comment on the issue.

The country’s inflation figure stands at $269,2%, up from 228% last month.

Economists predict it could soar and surpass the 450% mark by year-end.

The bankers questioned why the central bank continued to “down-play inflation” when even the Zimbabwe Stock Exchange (ZSE) had introduced the International Accounting Standards (IAS) 20 reporting methods used by companies operating in hyperinflationary economies. The ZSE chief executive officer is Emmanuel Munyukwi.

Trust Holdings Ltd chief executive officer William Nyemba said the available denominations were now too small given the value of the Zimbabwean dollar.

Nyemba said: “$1000 and $5000 notes could help. Even a $5000 note will soon be overdue. Why waste money minting the $5 coin, and printing the $10, and even the $20 notes? The denominations are now too small given what our Zimbabwean dollar can buy.”

Nyemba is a former vice president of the Bankers Association of Zimbabwe and a member of the influential World Economic Forum’s top 100 bankers committee.

When he introduced the $500 note and the $5 coin in August 2001, RBZ governor Leonard Tsumba confirmed that “very high inflation over the past decade has significantly eroded the value of money in circulation”.

Tsumba said for example a 1990 Zimbabwe dollar was worth only six cents in 2001.

The RBZ governor said then that the annual budgetary provisions for the supply of notes and coins had increased markedly over the period between 1990 and 2000, from $176,2 million in 1996 to $846,6 million in 2000.

Tsumba said: “Increase in inflation from 15,5% in 1990, to 22% in 1995 necessitated the introduction of high banknote denominations – the $50 note in March 1994 and, the $100 note in January 1995.

“The surge in inflation to 64,4% by June 2001, has further increased the public’s demand for higher currency denominations. There has, therefore, been a notable increase in the usage of the $100 note. In view of this, the bank will introduce a new addition to the existing banknote series – the $500 bill.”

A Kingdom Financial Holdings Ltd (Kingdom) banker said Zimbabweans were losing their confidence in the country’s banking system.

He said: “The stayaways have affected the cash flow tremendously because people are now stocking everything in their homes because they do not know when the indefinite event will be. There is much demand for cash and goods.”

Last week the Zimbabwe Congress of Trade Unions told citizens to “stock up” because they were widely consulting on an indefinite stayaway meant to “reverse the 300% fuel price increases”. They, however, did not specify when the event would be held.

If held it would be the nation’s third stayaway this year.

The Kingdom banker said higher denominations, while not being the best solution, would stop people from moving around with large sums of money.

He said: “There is much that needs to be done by the RBZ because it is still using systems that are out-dated and not 100% fool proof. Bankers have become more sophisticated and are managing to beat the system.

The trade liberalisation opened people’s eyes and made them cleverer. I believe supervision at the RBZ is not as tight as it was during the days of Ian Smith because I was among the individuals who helped change that system together with some IMF officials.”

The banker said government needed to control inflation if it was to win the war against small notes.

Century Holdings Ltd (Century) group economist David Mupamhadzi said the available notes and coins were “worthless” and an inconvenience to customers.

Mupamhadzi said: “A higher denomination, probably such as the $2000 note, needs to be introduced. Definitely a higher denomination is long overdue because you need to carry millions to buy basic commodities right now.”

Zimbabweans are scurrying for goods carrying millions of dollars sometimes in their vehicle boots, in a move that has caused shortages of notes in commercial banks and led to the skyrocketing of basic commodity prices. Price controls introduced by government two years ago have added to the cash crisis.

Nyemba said: “We badly need to bring back the much-needed confidence in our economy and to our own people. Even our own people do not trust each other, which is leading to a dangerous cash economy.”

Mupamhadzi said: “The behavior of individuals is irrational and they will always try to maximise profits. It is a sign that people are responding to market forces. However, the individuals are worsening an already critical situation and money is no longer flowing within the banking sector leading to a serious cash crisis.”

He said the numerous shortages also forced individuals to keep money on them in case they came across “cheap and quick deals on the streets.

“Hyperinflation is a serious state of affairs,” he said. “We need to tackle this animal sooner than later.”

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