THE Reserve Bank of Zimbabwe (RBZ) recently issued a new ZW$50 banknote, with critics claiming that the bill, embossed with the portrait of liberation icon Mbuya Nehanda, will fuel inflation in an economy already devastated by stagnant growth due to the Covid-19 pandemic.
DUMISANI NYONI
But the banknote, the highest denomination in Zimbabwe’s local unit, is not enough for a loaf of bread, indicating how inflation has ravaged the currency.
It now sounds like a folktale that the local currency was stronger than the United States dollar at Independence in 1980.
The ZW$50, almost equal to US$0.59 using the official exchange rate, joins other denominations which have been eroded by hyperinflation which soared to 800% in 2020 before slowing to 106% this year.
The apex bank announced several months ago that it would issue higher denominations, with the market expressing fear the move could stoke inflation.
Some independent economists commended the central bank for coming up with the new note while critics claimed it would fuel inflation in an economy already buffeted by a prolonged Covid-19 pandemic.
Some economic analysts who spoke to The NewsHawks said the release of the new note has evoked fears of hyperinflation reminiscent of the 2008 era, while others said it would reduce the cost of bank withdrawals.
In 2008, Zimbabwe suffered the second most severe episode of hyperinflation in recorded history. The annual inflation rate peaked in November of that year, reaching 89.7 sextillion percent, according to Steve Hanke, an economist and currency expert.
In its weekly review, a civil society organisation, the Zimbabwe Coalition on Debt and Development (Zimcodd), said the new note amounts to a mere US$0.36 when calculated on the parallel market rate.
“The highest notes in Zambia, Botswana and South Africa are worth US$4.50, US$18.35 and US$14, respectively–denoting the decimated purchasing power of the local currency,” Zimcodd said.
“The concern to the ordinary citizen is: How many groceries can you buy with the ZW$50? One requires two new ZW$50 notes to buy a loaf of bread whilst the full complement of all the notes (ZW$50, ZW$20, ZW$10, ZW$5 and ZW$2) when added together cannot buy a loaf of bread.”
“This is just but a replay of the well-known inflation experiences of 2008/2009 which led to the abandonment of the Zimbabwean dollar as the US dollar took centre stage in supporting transactions in Zimbabwe,” the social justice advocacy group said.
Zimcodd said in an inflationary environment, the introduction of new banknotes is unpopular as the money loses value, instantly igniting the need to introduce higher denominations reminiscent of the 2008 era when the RBZ printed a quintillion dollar note which was inadequate for a loaf of bread.
“The value loss of the local currency scuttles confidence building by the public, thereby discouraging savings as interest earned is lower than the inflation rate (negative return). Notably, the government demands payment for its services in the US dollar–pointing to government’s loss of confidence in its very own currency,” it said.
The organisation said efforts should be channeled towards stabilising the value of the Zimbabwean dollar before further notes are introduced, otherwise the printing of money becomes a worthless exercise.
“The introduction of the new ZW$50 advances government’s motive of acquiring the US$ through profit made by issuing the new notes,” it said.
Among the key qualities of money the world over is the “store of value” function attached to a currency, the organisation said.
Commentators say the new note is expected to do little to contain inflation, stabilise prices or improve Zimbabwe’s economic prospects.
Previous injections of the ZW$10 and ZW$20 banknotes have failed to ensure economic stability, largely as a result of policy inconsistencies, especially with regards to currency.
Economic analyst Stevenson Dhlamini said the introduction of higher notes would stoke inflation.
“I know the government is looking at ending the year at around 20%. I think it’s a bit ambitious despite the positive outlook in terms of our economic growth. Inflation is currently hovering around 106%, which is a significant drop from where we began the year, which was around 300%,” he said.
“We are likely to see an introduction of higher notes like new ZW$100 and ZW$200 bills, which are likely to undermine the expectation of inflation being around 20%,” Dhlamini said.
Economist Godfrey Kanyenze, however, said the new banknote will not stoke inflation but help facilitate transactions.
“In an inflationary environment, having ZW$20 as your highest denomination does not help or facilitate transacting, especially as the money loses value. So you need a higher note,” Kanyenze said.
“Which country have you seen with a ZW$20 note as your highest denomination? Look at South Africa, they have got R200, R100, R50, R20 and R10 notes, but with us having just ZW$20 as highest, it doesn’t facilitate transacting at all.”
He said when transacting one does not even compare values but “you are simply saying that within your context and environment, especially where your Zimbabwean dollar is losing value, it would be difficult for locals to transact.”
“If you have to pay in cash, it may imply having to carry big amounts of money. So having a larger denomination generally facilitates transacting. Generally, the world over, denominations help you in terms of transacting. The higher the denomination you have, the easier it is, especially in our context where money is losing value quickly.”
“Without even comparing it to anyone, just look at the inflation because this is not cross-border transacting, this is domestic transacting where the exchange rate may not be determinant,” said Kanyenze.
Economic commentator Reginald Shoko weighed in, saying the introduction of a new banknote would reduce the cost of withdrawing money from banks.
“It’s great for convenience and also will reduce the cost of withdrawals by the banking public. If you have realised, it was taking over two automated teller machine (ATM) withdrawals to get the maximum weekly cash allocation, which increases the cost due to the small currency denominations,” he said.
“Most of our prices are already pegged to the US dollar, hence the new note will not have a serious threat to inflation. The current inflation triggers in the economy are centred on foreign exchange rates,” he said, adding the economy will require a higher-denomination banknote going forward.
In the past, the government has been criticised for printing larger banknotes, evoking memories of Zimbabwe’s hyperinflationary period, when there were notes in circulation with a face value of ZW$100 trillion.
