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THE GOVERNMENT has redenominated the Zambian Kwacha, a move aimed at correcting misalignment in the currency and enhancing the credibility of the local legal tender.
The move is specifically aimed at addressing the costs associated with an accumulated loss in the value of the currency experienced during episodes of high inflation that undermined basic functions of the Kwacha.
The Government has also recapitalised the banking sector by revising the minimum capital for commercial banks. Finance Minister, Alexander Chikwanda said in Lusaka yesterday that consequent to the recommendations of the Bank of Zambia (BoZ), Cabinet yesterday met and approved the rebasing of the Kwacha by dividing the current notes by 1, 000. This basically means that three zeros would be dropped from denomination of the K1000 and above.
“For example, K1, 000 will become K1, K5, 000 will become K5, K 10,000 will become K10, K20, 000 will become K20 and K50, 000 will become K50.”
Mr Chikwanda announced this at a media briefing at his office yesterday. He said the exercise is likely to take the Government six months as it would have to negotiate with printing companies on the urgency of printing the notes as soon as possible, while at the same time following the laid down procedures as required by the Procurement Act.
Mr Chikwanda said the BoZ would also reintroduce coins for lower value denominations. He said the rebased Zambian Kwacha would address the costs associated with an accumulated loss in the value of the kwacha experienced during episodes of high inflation that undermined the Kwacha’s basic function as a store of value, medium of exchange and standard of value.
He said in the accounting sphere, the redenomination of the Kwacha would reduce the time taken to input financial data and time spent by management to review it.
Mr Chikwanda said the move would also reduce the costs often incurred in customising standard accounting packages purchased by businesses.
He said the present situation in Zambia was such that some organisations recorded values in trillions of Kwacha and, hence required further customisation of such packages to widen data fields.
“Therefore, rebasing the Kwacha will be of great value to businesses and will reduce inputting errors,” he said. He said the exercise would further reduce transaction costs for businesses and would tone down inflationary spirals. Meanwhile, Mr Chikwanda said the rebasing of the Kwacha was not a political gimmick but a purely business transaction which had a bearing on the development of the country’s economy and overall development agenda.
Responding to questions from journalists as to whether the Patriotic Front (PF) Government wanted to fix some former leaders in the MMD Government who had allegedly hidden stacks of money, Mr Chikwanda parried the assertions.
He said too many notes undermined the confidence of the people in the currency and that the Government was dealing with the issue of perception and reality.
He said before embarking on the exercise, Government ensured that the economic fundamentals obtaining in the country such as the low inflation rate and booming economic indicators supported the move.
With regard to the recapitalisation of the banking sector, Mr Chikwanda said Cabinet agreed that in line with Section 83 of the Banking and Financial Services Act, the BoZ had revised the minimum capital for commercial banks to provide for the tiering of the minimum capital requirements for local and foreign banks operating in Zambia.
Mr Chikwanda said the Government had also increased the minimum capital requirement from the current K12 billion to K104 billion for local commercial banks and K520 billion for foreign commercial banks.
“The measure to raise minimum capital requirement for banks is intended to mobilise additional resources to enable banks participate more effectively in growing the economy by increasing credit available to the private sector,” he said. He said the increase in the minimum capital requirement would make the banks more resilient to economic shocks.
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