HARARE – Economists in Zimbabwe say the Reserve Bank of Zimbabwe’s decision to introduce new currency notes will drive up inflation after the governor, John Mangudya said on Tuesday that the country was introducing new notes to plug monetary gaps.
The Zimbabwean financial sector crisis has given rise to exorbitant premiums on cash. Vince Musewe, an economist in Zimbabwe, said an increase in hard cash through introduction of the new Zimdollar notes will drive informal dealings.
“Increase in hard cash will lead to more speculative economic activity led by informal sector resulting in more demand for USD leading to USD rate increasing and more inflation,” said Musewe.
Zimbabwe is desperate to address a biting financial sector crisis as banks continue to fail to meet demand for cash from depositors. Finance Minister Mthuli Ncube hinted at introduction of a new currency before year end and Mangudya confirmed this, saying the new Zimdollar notes will be introduced next month.
“We will be introducing new $2 coins and $2 and $5 notes. These will not be bond notes but will be equivalent to the bond notes and will be similar in colour to the bond notes,” said Mangudya said after a meeting of the central bank’s monetary policy committee (MPC).
Mangudya said the MPC had decided to be “conservative for a start” by introducing smaller denominations.
The new Zimdollar notes will circulate alongside the bond notes quasi currency that has been legal tender in Zimbabwe since 2016.
Christopher Mugaga, economist and chief executive of the Zimbabwe National Chamber of Commerce was unimpressed by the MPC decision.
“The inaugural press statement by the MPC of our Central Bank is far from inspiring, they must climb down from singing for supper and issue well thought out press releases,” said Mugaga.
In its statement, the MPC said “there was a need to boost the domestic availability of cash for transactional purposes through a gradual increase in cash supply” over the next six months.
The Committee also noted the need to review upwards the cash withdrawal limits to ease the burden on the transacting public. This additional cash injection will be carried out through the non-inflationary exchange of RTGS money for physical cash.