KBN TV EDITORIAL –  A DETAILED ANALYSIS OF THE MERITS AND DEMERITS OF THE NEW CURRENCY NOTES ANNOUNCED BY THE BANK OF ZAMBIA

Firstly, we welcome yesterday’s statement by the Bank of Zambia, confirming our earlier report about the planned change to the Kwacha. We are satisfied that the Central Bank doesn’t need to respond to our Press query which remained unanswered by the time we gave an exclusive revelation of this development.

We wish to appreciate management at the Central Bank for acting swiftly to inform the public and inadvertently kick-starting the much needed publicity to raise mass awareness about this change to the local currency nationwide.

It’s worth pointing out at this stage that when a media house is independent enough to build its credibility in the eyes of the public,  information easily flows to such a media house. We are therefore grateful and we remain indebted to all our confidential sources that have built trust and confidence to share information with us. We guarantee you our utmost ethical and professional conduct as a media house.

When it comes to matters of national importance, there is no need for grand standing, information flow should become a priority for the benefit of all citizens.

We now look forward to collaborating with the Bank of Zambia in sensitizing members of the public about the new changes to the currency before and after March 31, 2025.

Now that an official position has been given publicly, it’s time for us to move the narrative forward and discuss the merits and demerits of the new currency.

To begin with, when announcing this drastic move, it’s worth noting that Dr. Danny Kalyalya, revealed that the process to print the new notes started in July 2021, when the Board approved the proposal, well before he became Governor.

Ideally, that’s a very generous acknowledgement of the work done by Dr. Chris Mvunga who was Bank of Zambia Governor during the PF regime. It’s a low hanging fruit that the new administration found on the table and should have capitalized on just when they came into office rather than waiting 17 months before the next general elections.

Incidentally, this revelation defeats the notion that printing of the new currency was targeted at the former regime who are suspected to be keeping significant amounts of cash out of circulation.

When you scan the social media, there is so much buzz about mixed reactions to the new K200 and K500 notes. But we must understand that what dictates the upward re-denomination of currency is the loss of purchasing power resulting in carrying a higher volume of cash.

This is not debatable as it’s evidently reflected in the high cost of living we are currently experiencing. Therefore, the Central Bank’s move to introduce higher currency denomination reflects the loss in the currency’s purchasing power. With that in mind, let’s take a detailed look at the merits and demerits of the re-denomination:

Merits:
1. Consumer convenience in undertaking high value cash transactions.
2. ⁠Consumer convenience to draw sufficient cash from electronic channels such as ATMs at single withdrawal costs. You do not need to make multiple withdrawals at ATMs as each single withdrawal attracts a fee.
3. ⁠Lowers cash management costs due to lower cash volumes.
4. ⁠safety and security for citizens as you can now carry more cash without being noticeable.

De – Merits

1. Managing negative perceptions that higher denomination notes leads to higher inflation. The reality is that higher denomination notes acknowledge loss of purchasing power and if not attended, consumers will end up carrying suitcases of money to buy groceries which pose a security risk.

2 We raise concern about Ngwee coins which we consider to be valueless. The risk with Ngwees is that consumers will just stash them aside and BoZ will have to keep printing new ones as they are unlikely to re-circulate back in the money markets.

The question we ask is why not just do away with coins and ensure that we have pricing in absolute whole numbers. We feel the proposition of minting of Ngwee coins is misplaced and adds no value. If we accept that the objective of upward re-denomination is loss in purchasing power from inflation, then what good will minting of Ngwee coins do?

In terms of inflation and a possible correlation with higher denominations, one school of thought holds that higher denominations will trigger inflation in the economy. However, it’s imperative to realize that inflation is a function of supply and demand. When demand outstrips supply, prices move up and this is what is termed as aggregate demand driven inflation.

On the other hand, you have cost push inflation which has nothing to do with supply and demand. Zambia is import dependent, therefore, the depreciation of the Kwacha has resulted in cost push inflation and not necessarily because of supply and demand of goods and services.

Given the growth in digital transactions such as mobile money, internet banking, debit and credit cards, the negative inflationary perceptions due to the upwards re-denomination of the currency should be mitigated if well managed. It is therefore, critical for BoZ to implement a concise, clear and comprehensive sensitization of the citizens on this development.

It is also worth noting that this decision having crossed two Bank of Zambia Governors and still being implemented, infers that it has been well thought through at a technical level.

Further, the issue of inflation driven high value denomination can also be abated by giving a historical perspective. In the past, notes and cheques were dominant payment instruments. This has now evolved to other more convenient instruments like mobile money whose sole purpose is to cater for low value transactions and is ever increasing in volumes.

So the issue of change being raised, for example, paying K5 bus fare using a K500 note is really exaggerated. Even under the current scenario, how many people practically pay bus fares with hundred Kwacha. Evidently again, the loss of texture in the low value noted K2 to K20 demonstrates that these are the most used denominations than K50 and K100 notes.

While this is a good development, concerns still remain on the limited timeframe between now and the 31st March when the new currency becomes a legal tender. Typically, this is less than 2 months. From a communication perspective, the time is not sufficient to raise massive public sensitization across the country.

Further, it’s not yet clear for how long the two currencies will run parallel to each other to give sufficient time for everyone to trade in the old currency. It’s our understanding that since the notes have changed completely, BoZ will try to shorten the period of changeover but it is our considered view that challenges will abound in trying to effectively service the rural areas on account of time limitations. To overcome this barrier, we anticipate extensions to the timeframe.

Lastly, while the printing of new money is welcome,  it’s not what will fix the current economic woes. We need more productive sectors in the economy to attract foreign exchange earnings which will in turn strengthen the battered Kwacha.