Finance

Higher denomination banknotes welcome, but…

BLESSING MADZIWANZIRA

Government’s plans to introduce higher denomination notes will help contain the cash crisis, analysts have said, but warned that such a move could trigger inflation.

The government re-introduced the Zimbabwe dollar in June last year after banning the use of multi-currency regime under the Statutory Instrument 142 of 2019.

The government injected ZWL$2 notes and ZWL$5 notes to ease cash shortages. But, cash shortages still persist. In an interview with Bloomberg during the World Economic Forum, in Switzerland last week, Finance minister Mthuli Ncube said the government would introduce high denomination notes, the ZWL$10, ZWL$20 and ZWL$50, as part of efforts to deal with cash shortages in the economy.

“First of all, we [the government] are doing two things, we are injecting cash into the economy, feeding the economy, but we want to do it in a non-inflationary way whereby we exchange electronic currency for physical cash.”

 Economic analyst Trust Chikohora said higher notes will bring convenience into the economy. “It will be easy to transact cash using high denominations as compared to small denominations.

But, this does not necessarily mean that this (introduction of higher denomination notes) will end inflation, so it is likely to cause

[hyperinflationary pressures]

in the country,” Chikohora said.

Zimbabwe is grappling with rising inflation with annual inflation estimated to be over 500% in December.

Last year, Ncube banned the publication of annual inflation until next month. Experts say the economy is already in hyperinflationary environment after the Public Auditors and Accountants Board directed public companies to adopt International Accounting Standards 29 which deals with financial reporting in hyperinflationary economies.

 Economist, Brains Muchemwa said the introduction of higher denomination notes has been long overdue “confirming how our policymaking framework has been largely reactive instead of being proactive.

“The fact that the biggest denomination will barely afford two loaves of bread points to a sad fact that the policymakers are more inclined to push the transacting public towards electronic payments in order to maximise on the 2% tax,” Muchemwa said.

The economy has been grappling with a cash crisis since 2016. This has seen premiums on cash of 40% on notes and 25% on coins.

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