Biti says the introduction of $50 note is criminal

TOP economists are confident that the new $50 notes, introduced by the Reserve Bank of Zimbabwe Tuesday, will not trigger inflationary pressures.

However, former Finance Minister Tendai Biti differed with the economists saying the introduction of the new $50 note was criminal and would fuel inflation.

The new note went into circulation Wednesday morning as the central bank unveiled plans to inject $360 million through the normal banking channels to make the cash accessible to the public.

However, speaking to NewZimbabwe.com Business in separate interviews Tuesday, economic experts hailed the introduction of the new $50 note, and downplayed fears that it will create inflationary pressures.

Prosper Chitambara described the development as "timely and positive" saying it would ease transactions.

"It is a positive step which will bring convenience in conducting transactions among the varied economic agents. The new notes resonate well with the current high cost of living which cannot be better served by lower denominations," he said.

"From past experience, the new notes will not in any way trigger inflation, bearing in mind that the biggest problem on inflation are the RTGS (Real Time Gross Transfer) balances, which through a number of regulatory measures, have been kept under watch by authorities."

John Robertson added the new notes will make the local currency more acceptable and relevant to the transacting public.

"The next move must be the increase of withdrawal limits from the current $2 000. That will make the new notes more relevant because citizens want to avoid the use of electronic money because it comes with an extra cost of the 2% tax," he said.

He also urged the central bank to expedite the inception of much higher denominations, brushing off fears of inflationary push-up factors.

"The auction system has maintained stable exchange rates since its inception last year and if such a trend is sustained, even much higher denominations will not be a threat to inflation. In Japan, their notes go to 1 000 yen but that has never contributed to inflation," he said.

Instead, Robertson said the government must stop increasing prices of fuel and power among other basic services as this was a major source of inflation.

Persistence Gwanyanya said the global standard was that a country's largest denomination should be equivalent to US$20 while in Africa the common range is US$5 to US$20.

However, the new $50 is equivalent to US$0.60.

"This means by global standards; our largest denomination should be around $425 to $1 700 for transactional convenience. Due to our historical experience of hyperinflation, on account of excessive monetary expansion, which was supported by higher cash denominations, the RBZ is now overly cautious about higher denominations," he said.

However, Biti differed claiming the new $50 note would fuel inflation.

"The rogue Central Bank has been doing what it does best, printing money. Expansionary monetary policy has seen Broad Money (M3) rise to $24,4 billion in June," he said.

"This criminal behaviour fuels inflation. Bank has been at the centre of extractive economics for decades. Zimbabwe does not need a Central Bank."