THE Reserve Bank of Zimbabwe will introduce a new set of higher denomination bank notes over the next few weeks to increase physical money supply and curb prevailing cash shortages.
Authorities have given the greenlight for the introduction of $10 and $20 bank notes worth close to $600 million. The money will be drip-fed into circulation beginning this quarter. Currently, around $1,4 billion in cash is circulating. The new notes are expected to take the total to $2 billion.
Designs for the new denominations have already been approved and printing of the new notes is underway. Zimbabwe has $2 and $5 notes and coins, which make cash transactions cumbersome, with small transactions now requiring huge wads of notes and coins due to high inflation.
Cash shortages have resulted in long queues at banks, spawning a thriving illegal cash market where huge premiums of up to 40 percent are charged to convert electronic money into cash. In addition, cash shortages have led to the creation of a multi-tier pricing system, where prices of a single product differ depending on the customer’s mode of payment.
Authorities believe that the new notes will enhance convenience to the transacting public and eliminate the illegal cash market. Member of the RBZ Monetary Policy Committee Mr Eddie Cross told our Harare Bureau that an announcement of the new notes was imminent.
“The plans are advanced and higher denomination notes will be made available to the public sometime later this month,” said Mr Cross.
“The Reserve Bank will make the announcement. They (the notes) are being printed and the appropriate date will be announced soon.
“We had a meeting yesterday of the MPC and the Governor confirmed to us that the rollout will be in stages so it won’t be a full range of notes initially, but it will only be higher denomination notes.”
He said banks will be required to exchange their electronic balances for physical cash to ensure that no new money is created.
“We are moving cautiously because we don’t want to disturb the monetary balance and we are insisting that banks pay for the currency when they draw it so that there is no money creation,” he said.
“We are now taking steps to start implementing that. We started in September last year when we had about $500 million worth of notes in circulation and now we have between $1,3 billion and $1,4 billion notes. This will take it up to $2 billion. Our target is $3 billion, which amounts to about 10 percent of our money supply.”
“The other thing is that we have decided that the Reserve Bank will start buying back soiled notes,” he said.
RBZ deputy governor, Dr Khuphukile Mlambo, refused to disclose the rollout plan, saying it was “sensitive”.
“That is a very sensitive issue . . . I cannot comment on it either way because I am working from Bulawayo these days,” said Dr Mlambo. RBZ Governor, Dr John Mangudya, did not respond to questions from our Harare Bureau.
Soiled notes, said Mr Cross, will be removed from circulation as the new notes are introduced onto the market.
“We had suspended that operation for some time but we are now going to restart the operation and an announcement will be made pretty soon by the bank as to the procedures that will be followed by the commercial banks.
“So we are going to start buying back the soiled notes, which will then be destroyed. We are trying to clean up some of the older notes that are out there and maybe are beyond use.
“Gradually we are getting on top of the cash situation, cash will still not be in free supply but this is going to improve matters.
“The RBZ must always be transparent. The black market or grey market type of lending outside the formal banking system is a serious matter that has to be dealt with. The Central Bank must gain moral and public trust.
“This business of a connected individual and a few of his cronies having all the notes when the economy suffers must stop. Another thing is that those notes should start from as high as $50 or $100 because that is the reality of where we are.”
The Zimbabwean dollar was re-introduced in June last year following a ban on the use of the multiple currency regime that had been in place since 2009.
Government subsequently introduced new $2 and $5 notes and coins late last year. The multi-currency system was re-introduced recently.