Rebasing the Kwacha

This is a transcript of the pamphlet distributed by the Bank of Zambia, BOZ.  For further information contact: Public Relations Division, Bank of Zambia, P.O. Box 30080, LUSAKA 10101.  Tel: +260 211 228888 Email rebasing@boz.zm, Website: http://www.boz.zm. Of course I have edited, I canna help myself, commas and grammar are important.  I have not changed words or meaning.

You can get more information from BOZ and their webssite.  They are advertising in the paper daily, as well as frequently on tv and radio: the public can exchange their notes from 1st January 2013 and old Kwacha will be legal tender until 30th June.  During this period business must display prices in old and rebased currency and change must be given in new Kwachas whenever possible. After June 2013, prices will only be shown in rebased currency. Thereafter,exchange of old currency will only be possible at the central bank or a designated agent until June 2014, after which this facility will be available at the central bank itself.  

KWACHA REBASING - ALL YOU NEED TO KNOW 

On 23rd January 2012, the Government of the Republic of Zambia approved the recommendation of the Bank of Zambia, BOZ, to rebase the Zambian Kwacha.  During the period prior to the launch, BOZ will provide information to ensure that the public understands what this process will entail.  In this publication, we provide answers to some pertinent questions that members of the public have been asking. and welcome any contributions that the public may have.

What is Currency Rebasing?

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Currency rebasing involves dividing a currency unit by some denominator.  In this case the Zambian currency will be rebased by dividing the existing banknotes by 1000 hence lopping off 3 zeros from the exisitng K50,000, K20,000, K10,000, K5,000 and K1,000.  

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The lower denominations that include the K500, K100 and K50 will be divided by 1000 and converted into coins, while the existing K20 banknote will not be converted into a coin, due to its eroded purchasing power.  Thus, it will be eventually removed from circulation.

Why rebase the currency?

The decision to rebase the national currency has arisen from the need to address cost associated with an accummulated loss in the value of the Kwacha, arising from years of high inflation that characterised the Zambian economy in the late 1900s and the early parts of the 2000s.  Such high levels of inflation at that time resulted in inconvenience and risks involved in carrying large quantities of money for relatively low value transactions.  This then prompted BOZ to introduce high value denominations in 2003, which included the K20,000 and the K50,000 notes, to facilitate transactions.  In recent times, the economy has stabilised, and it has been decided that this is the right time to rebase the currency.

Will rebasing cause inflation?

No inflationary effect arising directly from rebasing is expected as the operation is basically a zero removal process, with the quantity of currency in circulation, in terms of pieces, remaining the same.  In other words, one K50,000 banknote for instance, will be replaced by one K50 rebased banknote.  The value, in terms of purchasing powerm of the K50,000 and the new K50 will be the same, hence will buy the same goods and services without increasing the prices.

What are the benefits of rebasing the Kwacha?

The benefits of rebasing the Kwacha can be divided into economic and social benefits as shown below:

Economic benefits:

i. It will reduce costs incurred in customising standard accounting packages, since most of these are developed in countries where values are mostly in millions and rarely go into billions and trillions.

ii. It will reduce time taken to input accounting information, thus improving accuracy and reporting times.

iii. It will allow the Central Bank to introduce coins in the high circulating denominations, increasing durability and consequently resulting into savings on costs usually associated with printing.

iv. Rebasing the Zambian Kwacha will increase credibility in the currency and will result in more confidence from both local and foreign investors.

v. Smaller digits will be easier to deal with and understand by the public.

Social benefits:

i. Re-introduction of the culture of using coins in Zambia will encourage technology transfer from developed nations in areas such as the use of vending machines, parking meters, etc.

ii. It will give the Central Bank future room to introduce higher value notes in line with economic growth without having to increase the number of zeros to extremely large numbers.

iii. It will hep the Central Bank to review security features on the banknotes, hence curbing cases of counterfeit notes.

When is the Central Bank going to launch the new banknotes?

BOZ will launch the new currency immediately the rebased currency is delivered to the Bank.  The two currencies,  both new and old, will circulate side by side for a period yet to be determined, while centres will be set up throughout the country to facilitate the ease of exchange of the currencies.

What will be the deadline for financial reporting?

BOZ will communicate the end date for Financial and other institutions to start reporting their financial statements using the new rebased banknotes as a unit.

Will BOZ educate the public on the use of new banknotes?

BOZ will embark on an extensive public education and awareness campaign to assist all Zambians in understanding issues surrounding rebasing of the currency.

How will the old currencies be phased out  and when will the new currency be introduced?

When the new currency is introduced, it will be allowed to run side by side with the old currency for a period to be determined.  This means that when members of the public deposit or use old currency in banks and other entities in the economy, the old currency will be withdrawn through commercial banks by BOZ.  At this stage BOZ will only issue the new currency to commercial banks.  Should members of the public have old currency in their posession following the expiry of the exchange period, they will be able to exchange the old currency with the new at BOZ or any of its designated agencies.  It is only after the adequate and stipulated period has elapsed that the old currency will be demonetised, i.e. will become illegal tender.

Will currency rebasing affect the value of savings?

The process of rebasing of the currency will simply change the amount quoted in individual accounts, but it will not change the value of money or indeed savings.  For example, an individual with a K200,000 balance in a savings account currently, after rebasing, the balance will reflect as K200.  The value, however, will remain the same.

In addition, if a household was spending K350,000 to buy a basket of goods and services per month, the household will spend K350 in the rebased currency to buy exactly the same amount of goods and services.

Will the exchange rate be affected by rebasing the currency?

Rebasing the currency will not affect the Kwacha exchange rates.  The exchange rates will simply be divided by 1000, as illustrated in the example below:

                         *ZMK Exchange Rate       ZMK Rebased Exchange Rate

US Dollar                   5000                               5.000

British Pound              7000                               7.000

Euro                           6000                               6.000

RSA Rand                    600                               0.600

*Please note that this is an example and does not necessarily reflect the current exchange rates.