Zambia zeroes in on new banknotes

[seetrader1]

http://www.bdlive.co.za/world/africa/2012/11/25/zambia-zeroes-in-on-new-banknotes

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"WHILE South Africans get used to the new banknote series, with the Big Five moved to the back of the notes, Zambia is preparing to remove three zeros from its money.

The Bank of Zambia has announced that the kwacha will be rebased by dividing it by 1,000, dropping three zeros off the currency, on January 1.

Zimbabwe’s regular and drastic currency rebasing a few years ago might have created the impression that dropping zeros is a desperate and cosmetic exercise, but analysts say it is often necessary to rebase a currency, ideally when an economy is stable and growing.

“Currency rebasing is usually implemented when there is a need to address costs associated with an accumulated loss in value of the currency that undermines its basic function as a store of value, medium of exchange and measure of value,” said Janine Botha, economist at NKC Independent Economists.

The Bank of Zambia said high kwacha denominations were the result of high inflation for a long time. Zambia had very high inflation in the 1990s and early 2000s. Its inflation peaked at 188% in 1993.

Now Zambia has a K50,000 note, but this is worth less than $10. The Bank of Zambia said this resulted in inconvenience and risks in carrying large sums of money for transactions. It has also led to increasing difficulties in maintaining bookkeeping and statistical records, ensuring compatibility with data-processing software and higher costs in the payment system.

“Too many zeros on a currency simply becomes an administrative nightmare,” said Jannie Rossouw, economics professor at Unisa’s department of economics. “People have to walk around with bags full of money. Zimbabwe issued a Z$100-trillion note at one stage, and at some point there simply is not enough space left on a note to print all the zeros.”

Michael Keenan, currency analyst at Absa Capital, said that after the earlier hyperinflation in Zambia, which caused the currency to drop in value, Zambia’s economic backdrop had improved substantially.

“They have current account surpluses, inflation is about 6%, everything is kind of back to normal, but they still have this currency with all these decimals. It makes sense for them to drop off these zeros, because it will be a lot more convenient and safer.”

Ms Botha said a currency was usually rebased when economic conditions were considered favourable, with low and stable inflation, favourable macroeconomic conditions and good economic prospects.

She said that, in addition to making transactions easier due to the use of smaller units of money, the rebasing of a currency often tended to create greater confidence in the currency as too many digits or zeros could lead people to lose confidence in the currency.

“It also has the potential to enhance policy credibility, assuming that government remains committed to maintaining macroeconomic stability. This would be so as to avoid the return of many zeros on the currency.”

Mr Rossouw said some countries rebased currencies in the mistaken belief that it would curb inflation. “You need other steps as well. You cannot simply rebase your currency and do nothing else and think that will bring inflation under control.”

Mr Keenan said there was even a risk of inflationary pressure when a currency was rebased. “There will be some rounding, and while the effect will be small per item it could bring about a bit of inflation if you add them up. It happened in Ghana when they rebased their currency. The other potential disadvantage is you have the risk that people assume your currency weakens.”

Ms Botha said that, at the broadest level, rebasing a currency did not alter the value or purchasing power of the currency.

According to the Bank of Zambia, exchange rates will also be rebased, with the rule of 1,000 old kwacha equalling one new kwacha.

Mr Keenan said the South African Reserve Bank held some kwacha in its foreign reserve basket, but the foreign reserves were always measured in US dollars.

“If they drop the zeros off the kwacha, the dollar value of that portion of the reserves will remain the same. It will not increase or decrease the Bank’s holding of kwachas.”

How the old K1000 becomes the new K1

Zambia currently has banknotes for K20, K50, K100, K500, K1,000, K5,000, K10,000, K20,000 and K50,000. It has coins for K10, K5, K1, 50 ngwee and 25 ngwee.

After January 1 there will be a new note series for K100, K50, K20, K10, K5 and K2 and coins for K1, 50 ngwee, 10 ngwee and five ngwee.

An item that cost 1,000 old kwacha on December 31, will cost one new kwacha on January 1. From January 1 to June 30 next year all prices will be denominated in the old K-symbol currency and temporarily in the new KR currency. During this time, goods and services can be paid for in both currencies.

From July 1 next year, the old currency will not be accepted, but it will be exchangeable for a year thereafter for the new currency at the Bank of Zambia, commercial banks and designated agents. The new currency will get the symbol K.

From July 1 2014 to December 31 2015, exchanges will be at the Bank of Zambia only and thereafter old currency will have no value.

Losing the zeros

South Africans are not strangers to the concept of a currency losing zeros, particularly as neighbour Zimbabwe has gone through several such exercises in the past decade.

However, the process in which Zimbabwe chopped a total of 25 zeros off its currency between 2006 and 2009 is not an example of how rebasing should be approached.

As inflation started to increase in Zimbabwe in the early 2000s, the central bank simply printed more money and larger denominations, fuelling inflation even further. In October 2008, one US dollar cost about 2.6-billion Zimbabwe dollars.

Zimbabwe stopped using its own currency in 2009 and now uses the US dollar and the rand.

Some of the more successful examples of currency rebasing have been in Ghana, which dropped four zeros off the cedi in 2007, and Mozambique, which lost three zeros from its metical in 2006.

Turkey knocked six zeros off its lira in 2005. Iraq planned to delete three zeros from its dinar next year, but its news agency has reported that this will not be done soon “due to the lack of security and economic stability in Iraq”.

[seetrader1]

Take off your Kraperoni and Breitling goggles ...read this article very carefully, and tell me you want Iraq to delete 3 zeros.

Edited November 25, 2012 by seetrader1

[jeepguy]

would be interesting to see if iraq is i watch and see mode with these zero`s in other countries ,,, if they fail even further down the economic hole or if they are able to stave off the infationary cost effects, of swaping the money

[umbertino]

Seetrader... Don't know why you got negged.... Tried to even you out but ran out of pluses.....Hope someone else will ( even you out).

[boomer113189]

i posted this on FB and twitter just like 20 mintues before you posted this. there talking about deleting 3 zeros on there currency notes to just like iraq will be doing

[hame55]

http://www.bdlive.co.za/world/africa/2012/11/25/zambia-zeroes-in-on-new-banknotes

.......................................................................................................................................................................................

"WHILE South Africans get used to the new banknote series, with the Big Five moved to the back of the notes, Zambia is preparing to remove three zeros from its money.

The Bank of Zambia has announced that the kwacha will be rebased by dividing it by 1,000, dropping three zeros off the currency, on January 1.

Zimbabwe’s regular and drastic currency rebasing a few years ago might have created the impression that dropping zeros is a desperate and cosmetic exercise, but analysts say it is often necessary to rebase a currency, ideally when an economy is stable and growing.

“Currency rebasing is usually implemented when there is a need to address costs associated with an accumulated loss in value of the currency that undermines its basic function as a store of value, medium of exchange and measure of value,” said Janine Botha, economist at NKC Independent Economists.

The Bank of Zambia said high kwacha denominations were the result of high inflation for a long time. Zambia had very high inflation in the 1990s and early 2000s. Its inflation peaked at 188% in 1993.

Now Zambia has a K50,000 note, but this is worth less than $10. The Bank of Zambia said this resulted in inconvenience and risks in carrying large sums of money for transactions. It has also led to increasing difficulties in maintaining bookkeeping and statistical records, ensuring compatibility with data-processing software and higher costs in the payment system.

“Too many zeros on a currency simply becomes an administrative nightmare,” said Jannie Rossouw, economics professor at Unisa’s department of economics. “People have to walk around with bags full of money. Zimbabwe issued a Z$100-trillion note at one stage, and at some point there simply is not enough space left on a note to print all the zeros.”

Michael Keenan, currency analyst at Absa Capital, said that after the earlier hyperinflation in Zambia, which caused the currency to drop in value, Zambia’s economic backdrop had improved substantially.

“They have current account surpluses, inflation is about 6%, everything is kind of back to normal, but they still have this currency with all these decimals. It makes sense for them to drop off these zeros, because it will be a lot more convenient and safer.”

Ms Botha said a currency was usually rebased when economic conditions were considered favourable, with low and stable inflation, favourable macroeconomic conditions and good economic prospects.

She said that, in addition to making transactions easier due to the use of smaller units of money, the rebasing of a currency often tended to create greater confidence in the currency as too many digits or zeros could lead people to lose confidence in the currency.

“It also has the potential to enhance policy credibility, assuming that government remains committed to maintaining macroeconomic stability. This would be so as to avoid the return of many zeros on the currency.”

Mr Rossouw said some countries rebased currencies in the mistaken belief that it would curb inflation. “You need other steps as well. You cannot simply rebase your currency and do nothing else and think that will bring inflation under control.”

Mr Keenan said there was even a risk of inflationary pressure when a currency was rebased. “There will be some rounding, and while the effect will be small per item it could bring about a bit of inflation if you add them up. It happened in Ghana when they rebased their currency. The other potential disadvantage is you have the risk that people assume your currency weakens.”

Ms Botha said that, at the broadest level, rebasing a currency did not alter the value or purchasing power of the currency.

According to the Bank of Zambia, exchange rates will also be rebased, with the rule of 1,000 old kwacha equalling one new kwacha.

Mr Keenan said the South African Reserve Bank held some kwacha in its foreign reserve basket, but the foreign reserves were always measured in US dollars.

“If they drop the zeros off the kwacha, the dollar value of that portion of the reserves will remain the same. It will not increase or decrease the Bank’s holding of kwachas.”

How the old K1000 becomes the new K1

Zambia currently has banknotes for K20, K50, K100, K500, K1,000, K5,000, K10,000, K20,000 and K50,000. It has coins for K10, K5, K1, 50 ngwee and 25 ngwee.

After January 1 there will be a new note series for K100, K50, K20, K10, K5 and K2 and coins for K1, 50 ngwee, 10 ngwee and five ngwee.

An item that cost 1,000 old kwacha on December 31, will cost one new kwacha on January 1. From January 1 to June 30 next year all prices will be denominated in the old K-symbol currency and temporarily in the new KR currency. During this time, goods and services can be paid for in both currencies.

From July 1 next year, the old currency will not be accepted, but it will be exchangeable for a year thereafter for the new currency at the Bank of Zambia, commercial banks and designated agents. The new currency will get the symbol K.

From July 1 2014 to December 31 2015, exchanges will be at the Bank of Zambia only and thereafter old currency will have no value.

Losing the zeros

South Africans are not strangers to the concept of a currency losing zeros, particularly as neighbour Zimbabwe has gone through several such exercises in the past decade.

However, the process in which Zimbabwe chopped a total of 25 zeros off its currency between 2006 and 2009 is not an example of how rebasing should be approached.

As inflation started to increase in Zimbabwe in the early 2000s, the central bank simply printed more money and larger denominations, fuelling inflation even further. In October 2008, one US dollar cost about 2.6-billion Zimbabwe dollars.

Zimbabwe stopped using its own currency in 2009 and now uses the US dollar and the rand.

Some of the more successful examples of currency rebasing have been in Ghana, which dropped four zeros off the cedi in 2007, and Mozambique, which lost three zeros from its metical in 2006.

Turkey knocked six zeros off its lira in 2005. Iraq planned to delete three zeros from its dinar next year, but its news agency has reported that this will not be done soon “due to the lack of security and economic stability in Iraq”.

OoooH! Ooooooh! Look at me Mommy! Watch me!

For Crying out loud, you lopsters...WTF! Why are you here?

LOOOOKY! I gotta anoder media article that says it ain't gonna be no money for nobody....

Grow up you guys. We know it might RD. Give us a break.

They're just gonna overlook all their lost wealth, just forget about it and start all over again...even though they have the power to revalue their money themselves...yeah sure.

[boomer113189]

OoooH! Ooooooh! Look at me Mommy! Watch me!

For Crying out loud, you lopsters...WTF! Why are you here?

LOOOOKY! I gotta anoder media article that says it ain't gonna be no money for nobody....

Grow up you guys. We know it might RD. Give us a break.

They're just gonna overlook all their lost wealth, just forget about it and start all over again...even though they have the power to revalue their money themselves...yeah sure.

lol

[JoeFriday]

would be interesting to see if iraq is i watch and see mode with these zero`s in other countries ,,, if they fail even further down the economic hole or if they are able to stave off the infationary cost effects, of swaping the money

What inflationary cost effects? An RD is neutral. If the economy is in trouble (high inflation etc) it won't correct that and if the economy is in decent shape it won't hurt.

[JoeFriday]

They're just gonna overlook all their lost wealth, just forget about it and start all over again...even though they have the power to revalue their money themselves...yeah sure.

"the great lost wealth" to be restored by an RV. Yet another pumper myth. Inflation or worse yet hyperinflation as experienced by Iraq under Saddam is certainly hard on folks who hold cash, but overall wealth is not lost. You end up with vastly more currency with each unit being worth vastly less. e.g. (just using rough figures) 75T dinars at $0.001 each has the same overall value as 25B dinars each worth $3.00, its $75B either way. Edited November 26, 2012 by JoeFriday

[seetrader1]

OoooH! Ooooooh! Look at me Mommy! Watch me!

For Crying out loud, you lopsters...WTF! Why are you here?

LOOOOKY! I gotta anoder media article that says it ain't gonna be no money for nobody....

Grow up you guys. We know it might RD. Give us a break.

They're just gonna overlook all their lost wealth, just forget about it and start all over again...even though they have the power to revalue their money themselves...yeah sure.

I'm willing to bet you more than half of dinar "investors" don't have the slightest clue what an RD is. They only know what pumper gurus tell them.

[MrFnHappy]

Take off your Kraperoni and Breitling goggles ...read this article very carefully, and tell me you want Iraq to delete 3 zeros.

Are those like beer goggles?

[seetrader1]

Are those like beer goggles?

Yes they are. :lol:

[cheevo]

“Currency rebasing is usually implemented when there is a need to address costs associated with an accumulated loss in value of the currency that undermines its basic function as a store of value, medium of exchange and measure of value,” said Janine Botha, economist at NKC Independent Economists..........is there a loss of value in the dinar?????? Just sayin....who knows wht they end up doin..just wish they'd get it overwith!!!

[jg1]

Just wondering, to LOP the zero's off the dinar, why do they need security and economic stability. If it RV'd, then I think you would need security, not if it their money LOPPED.

[hame55]

“Currency rebasing is usually implemented when there is a need to address costs associated with an accumulated loss in value of the currency that undermines its basic function as a store of value, medium of exchange and measure of value,” said Janine Botha, economist at NKC Independent Economists..........is there a loss of value in the dinar?????? Just sayin....who knows wht they end up doin..just wish they'd get it overwith!!!

Saddam overprinted the old dinars...case closed at advent of war 2003.

New dinars issued around 2003 and huge infusions of dollar cash into Iraq. Most sophisticated currency in the world.

No huge overprinting documented - they are cooking their numbers

Why would they replace the best currency printing in the world with highest security measures to spend millions more reprinting an entirely new denomination set? NO RD

Edited November 26, 2012 by hame55

[dinarck]

Take off your Kraperoni and Breitling goggles ...read this article very carefully, and tell me you want Iraq to delete 3 zeros.

Amen.....Not-so-Breitling and Kraperoni have everyone so misinformed and confused that 90% of the people reading this article think that Zambia is about to have a billion percent RV. Hurry hurry everyone........if you act fast I am sure ALi will love to sell you a couple quadrillion NGWEE.

Just wondering, to LOP the zero's off the dinar, why do they need security and economic stability. If it RV'd, then I think you would need security, not if it their money LOPPED.

There is no such thing as a "RV".

[hame55]

Just wondering, to LOP the zero's off the dinar, why do they need security and economic stability. If it RV'd, then I think you would need security, not if it their money LOPPED.

Read more:

Dinark says -----There is no such thing as a "RV".

DInark

Can you answer the question? Let's change the term - let's say no RV, but a Reinstatement of previous levels, or a managed float, or dirty float, etc. Whatever.

The question is still a good one and worth answering.

Edited November 26, 2012 by hame55

[magawatt]

Ok, Zimbabwe has some coal reserves and some precious and rare earth metals. But I don't think they are in the same league as Iraq.

Apples to oranges.

[caz1104]

OoooH! Ooooooh! Look at me Mommy! Watch me!

For Crying out loud, you lopsters...WTF! Why are you here?

LOOOOKY! I gotta anoder media article that says it ain't gonna be no money for nobody....

Grow up you guys. We know it might RD. Give us a break.

They're just gonna overlook all their lost wealth, just forget about it and start all over again...even though they have the power to revalue their money themselves...yeah sure.

If they could'nt find anything negative to post the boys/girls down here in LOPsterland would be irrelevant. And lord knows ego's won't let that happen. Yes an RD/LOP is a possibility-peace

[umbertino]

Ok, Zimbabwe has some coal reserves and some precious and rare earth metals. But I don't think they are in the same league as Iraq.

Apples to oranges.

Used to love the change rate when visiting there ( about 20 plus years ago). It wasn't yet to the point it would get later but still great.

Edited November 26, 2012 by umbertino

[JoeFriday]

Saddam overprinted the old dinars...case closed at advent of war 2003.

Not sure what you mean by "case closed". Dinars were exchanged 1-1 with Saddam dinars so his overprinting remained. Something like 4-5 Trillion dinars were exchanged, with another 3T or so in banks go produce an M2 of about 7T. Inflation continued, though at a much lower rate, and today M2 is 72T, but reserves are 68B so the exchange rate has remained steady as it was in 2004 with an M2 of 7T and maybe 6B in reserves.

New dinars issued around 2003 and huge infusions of dollar cash into Iraq. Most sophisticated currency in the world.

No huge overprinting documented - they are cooking their numbers

Why would they replace the best currency printing in the world with highest security measures to spend millions more reprinting an entirely new denomination set? NO RD

It isn't being done to get higher security measures but to lower M2 to get a exchange rate for the dinar of close to 1 USD. Paper money doesn't last long and they did not buy the printing technology but just contracted to have the bills printed. So contracting to have new ones printed only adds the setup costs for design etc. A few million for sure but not that much over their usual printing to account for wear.

They may or may not RD. South Korea had a booming economy for 40 years and never RD'd their currency which is close to the same exchange rate as Iraq (it has been up and down by 50% or so over that time and is back to around where it was 40 years ago). But the issues is not RD or RV, but RD or not RD. There is no RV (or RI).

[dontlop]

Amen.....Not-so-Breitling and Kraperoni have everyone so misinformed and confused that 90% of the people reading this article think that Zambia is about to have a billion percent RV. Hurry hurry everyone........if you act fast I am sure ALi will love to sell you a couple quadrillion NGWEE.

There is no such thing as a "RV".

Definition of 'Revaluation'

A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. central bank) can alter the official value of the currency. Contrast to "devaluation".

Investopedia explains 'Revaluation'

For example, suppose a government has set 10 units of its currency equal to one U.S. dollar. To revalue, the government might change the rate to five units per dollar. This would result in that currency being twice as expensive to people buying that currency with U.S. dollars than previously and the U.S. dollar costing half as much to those buying it with foreign currency.

Before the Chinese government revalued the yuan, it was pegged to the U.S. dollar. It is now pegged to a basket of world currencies.

Read more: http://www.investopedia.com/terms/r/revaluation.asp#ixzz2DLZRGDPk

[JoeFriday]

Ok, Zimbabwe has some coal reserves and some precious and rare earth metals. But I don't think they are in the same league as Iraq.

Apples to oranges.

The countries are certainly very different as are their economies. But they both share having a hyper-inflated currency (note past tense) but have inflation under control now. So to get back to a more normal exchange rate they RD (or rebase) the currency. Its not essential, but is often, but not always, done in such circumstances. So they might RD, or they might not. The "delete the three zeros" articles are certainly about an RD, but there is opposition to the process as well (with Iraq's political situation there is bound to be opposition to anything and everything from somewhere).

[cheevo]

Nice find there dontlop!!!

[JoeFriday]

Definition of 'Revaluation'

A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. central bank) can alter the official value of the currency. Contrast to "devaluation".

Investopedia explains 'Revaluation'

For example, suppose a government has set 10 units of its currency equal to one U.S. dollar. To revalue, the government might change the rate to five units per dollar. This would result in that currency being twice as expensive to people buying that currency with U.S. dollars than previously and the U.S. dollar costing half as much to those buying it with foreign currency.

Before the Chinese government revalued the yuan, it was pegged to the U.S. dollar. It is now pegged to a basket of world currencies.

Read more: http://www.investopedia.com/terms/r/revaluation.asp#ixzz2DLZRGDPk :tiphat:/>/>/>/>

Oh come on Dontlop, you know that when Dinarck says "there is no such think as an RV" he is using the term as it is used in dinarland, to be a revalue to at least a penny if not a dime or a dollar or three dollars. Of course countries that peg their currency adjust they rate the set, or revalue it from time to time (Iraq has done so at least a couple times since 2004). Its a huge (10x, 100x, 1000x...) instant change that can not happen. Edited November 26, 2012 by JoeFriday