By Deogratias Mmana & Justin Mkweu
The Reserve Bank of Malawi (RBM) Tuesday announced the introduction of a K5, 000 banknote as well as the upgrading of the K2,000 banknote, meaning that a banknote with additional features will be in circulation from February 24 next year.
RBM Governor Wilson Banda said introduction of the K5,000 banknote would cost the bank K1.4 billion, with the introduction of new features on the K2,000 banknote also costing the financial markets regulator K1.4 billion, taking the overall cost to K2.8 billion.
Banda justified the move at a news conference in Lilongwe Tuesday, saying the bank was responding to the currency management policy that guides it on how to react to economic developments.
The policy guides that the highest value denomination should not account for more than 60 percent of the total value of the currency in circulation.
“In the present case, our highest value denomination, the K2, 000 banknote, has been above the 60 percent threshold for some time and has hovered above 80 percent,” he said.
The RBM chief also said the bank wanted to reduce new banknote-issue costs as buyers would need one K5,000 banknote to settle a K4,000 bill instead of requiring two K2,000 banknotes.
In addition to portability, Banda said the central bank also considered the enormous pressure on demand for the K2,000 banknote, which signifies that it was being used for transaction purposes instead of being a store of value as should be the case for higher denominations.
“This, therefore, calls for a higher denomination banknote to act as a store of value,” Banda said.
He said the banknotes had security features that would be hard to copy.
Director for the Centre for Research and Consultancy Milwad Tobias said the introduction of the higher banknote was a response to economic environment realities.
“The currency has lost value and, as such, introducing a high value banknote helps central banks to preserve one characteristic of money, which is portability. It may also help reduce the cost of printing banknotes,” he said.
“Economic theory recommends that the highest note be maximum equivalent to $5. At the current exchange rate, a K5,000 note is just slightly above that threshold,” he added.
Economist from Malawi University of Business and Applied Sciences Betchani Tchereni told The Daily Times that the development was long overdue and did not pose any threat to the economy.
“Let me emphasise that the introduction of a new note is not inflationary but it means that inflation has already happened and the government is just reacting to that,” he said.
Just a decade ago, a bottle of Cocacola was selling at K50 but in 2021 it hovers around K300, rendering the K50 note almost valueless due to the depreciation of the Kwacha.
University of Malawi economist Ben Kalua said the introduction of the new note was just a reaction to market trends, which have shown that the K2,000 note is not corresponding to them.
He added that introduction of the K5,000 banknote did not necessarily mean people would have less purchasing power or doom for the economy.
The bank last introduced a high-value note on December 19 2016.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.