As the African nation of Zambia continues to struggle with inflation, Zambia has recently announced it is planning to toss three zeros off its banknote denominations while returning coins to circulation.
Zambia Daily Mail newspaper on January. 26, 2012 quoted businessman Lubuto Simwanza as saying, “Zambia has the highest denominations in the region. If you look to South Africa, they still have cents and many other countries still use coins.”
On January. 23, 2012 it took 5,120 kwacha to equal one U.S dollar. Zambia’s Finance Minister Alexander Chikwanda announced that Zambia would “rebase” the kwacha currency by lopping off three zeros from each denomination that is now in circulation. With this said it shouldn’t be a surprise coins have not been circulating in Zambia.
“The rebasing had to be done when all the fundamentals like inflation and GDP [Gross Domestic Product] growth were right and we think they are now right” said Chikwanda.
Typically, coins vanish from circulation when rampant inflation decimates their purchasing power like in Zambia. Also, the metal content of the existing coins is greater than the face value of the metal, which leads to scrapping and hoarding. The Bank of Zambia, the nation’s central bank has recently announced it is searching for a company that will mint coins and print new banknotes once the currency is rebased in Zambia.
“The process has begun. We will in due course update members of the public because this is a multi-faceted project” quoted Kanguya Mayondi, head of public relations for the central bank.
The newly denominated banknotes to circulate simultaneously with the notes they will replace until the notes are recalled which is not yet determined said Mayondi. Circulating coins are to be added to the mix when currency reform is introduced.
“Mr. Mayondi said the process of currency rebasing involves a wider review of the currency family and enhancing security features, but this does not change the value of the currency and the purchasing power,” according to the Zambia Daily Mail article.
The article continues, “He [Mayondi] said the rebasing of the kwacha has been due to the need to address costs associated with an accumulated loss in the value of the currency, which undermines its basic function as a store of value, medium of exchange, and measure of value.”
Inflation was the primary problem acknowledged Mayondi. According to Mayondi, Inflation was at 7.2 percent in December 2011, which is the lowest rate in some time. With this said it appears to this may be a good time to revalue the current currency system.
Today the highest bank note in circulation is the 50,000 kwacha.
The currency “rebasement” now being planned would revalue this 50,000-kwacha note at 50 kwacha.