Zimbabwe`s troubled history with bank notes enters a new chapter as fresh notes come into circulation.

Notaphilists – people who study or collect paper money – are likely salivating and dusting their collections of Zimbabwe`s bank notes, as they prepare to add to their collections, yet another series of notes as the country`s uneasy relationship with its currency continues.

The RBZ has announced a new series of ZWL$10 and ZWL$20 notes to start circulating in the economy, starting with the ZWL$10 note already in circulation, and the ZWL$20 note to come in the first week of June. Not only that, it has also announced the upward revision of withdrawal limits from ZWL$300 to ZWL$1,000 per week. Not that it is unclear to anyone, this revision in withdrawal limits to some measure portends the growing trouble the economy is facing. Hyperinflation. This then begs the question, why not just go for the jugular and issue say a ZWL$50 and a ZWL$100 note?

Introduction into Circulation of $10 and $20 Dollar Banknotes pic.twitter.com/sv4kjDFtOa

— Reserve Bank of Zimbabwe (@ReserveBankZIM) May 15, 2020

We have been here before, and this story is all too familiar. When it comes to Zimbabwe`s economy, time and again, we have seen that history does not necessarily repeat itself, but it often rhymes. For instance, during the heady hyperinflationary days of 2008, over the course of just a single month from December 19, the RBZ issued a series of no less than nine notes.

The notes ranged from the ZW$1 billion note, to the ZW$100 trillion note, which some historians claim to be the note with the most zeroes physically appearing on it ever issued. The point is, it is rather difficult to not see a similar trajectory being retraced, as these new notes come into circulation.

Call it lack of imagination, being steeped in the comfort of the familiar, sentimentality, or whatever tickles your fancy, but it is rather ironic that the “new” ZWL$10 and ZWL$20 bear a strikingly similar resemblance to the first notes introduced not too long after independence in 1980. Just before the country`s first year independence anniversary, on 15 April 1981, the RBZ issued a red ZW$10 note, and about a year later in April 1982, the ZW$20 note with the Victoria Falls and an elephant at the back were introduced.

These were part of the first series of four new notes introduced after independence, generally known as the Krogh series, named after Desmond Krogh, the first Governor of the RBZ.  The new notes now being introduced in 2020, interestingly bear near resemblance to these Krogh series notes introduced just after independence. Perhaps this is all part of a calculated plan by the authorities to stoke up nostalgia in the public, and with it, a degree of confidence in the currency.

From the time the new notes were issued in 1981 to date, in an effort to keep up with inflation and its many other disastrous effects on the economy, the country has witnessed quite an extraordinary streak of change in its bank notes. Zimbabwe has seen Bearer`s cheques, Agro-bills, Traveller`s cheques, a 1 cent note, and even notes printed on bond paper in July 2008, after the German based firm Giesecke & Devrient ceased providing banknote paper to the RBZ. This was in response to an official request from the German government.

Slashing zeroes

In fact quite remarkably, under various code names such as “Operation Zuva Rabuda” or “Zero to Hero”, in the past, the RBZ has had to remove a staggering 25 zeros from the various Zimbabwe dollar notes issued. 3 zeroes were removed in August 2006, 10 zeroes in August 2008, and 12 zeroes in February 2009, just prior to the adoption of the multi-currency system.

If indeed the new notes being issued are meant to make life easier for the transacting public, then one may ask why higher denominated notes are not being issued. Understandably, the authorities may put up the “managing inflation expectations” argument as a reason for holding back on lager denominated notes. However even at the official interbank rate of 25, the new ZWL$20 note is not even worth US$1, while at the parallel market rates, it is worth around US$40 cents.

Obviously, given the country`s hyperinflationary economic realities, it is only a matter of time before even larger denominated notes are introduced. Ironically given Zimbabwe`s very own history, and that elsewhere, shortages of these newly minted notes are potentially going to remain pervasive in the market. This shortage of physical notes has seen the current bond notes in circulation being traded openly for a premium as a commodity themselves.

Cash shortages

As happened in May 2002, when the country officially waded into hyperinflationary territory for the first time, and as has been happening in recent years, cash shortages abounded. Authorities have in the past even blamed organized crime groups for hoarding newly minted notes, giving rise to the “cash barons” label, which especially took hold under Gideon Gono`s rein as governor.

 Quite quizzically, in July 2003 for example, the finance minister, Herbert Murerwa announced the withdrawal of the red ZW$500 note with a silver strip from circulation, alleging that the note was being hoarded, thereby causing cash shortages. Further, frequent incidents of sealed bank notes surfacing on the streets, as opposed to the official banking channels will continue to hurt the public`s confidence in the system, to the extent that the authorities do not effectively deal with this malady.

Zimbabwe`s Currency in Circulation – paper currency and coins held both by the public and in the vaults of banks – as an overall share of money supply, is low, at just 2.59%, according to the RBZ. This shows a perceptible decline of cash as king locally, as electronic payments become entrenched.

Crucially, the new notes are being introduced at a time when the economic order is being reconfigured, thanks to the Covid-19 pandemic. People will likely shun the physical handling of notes in favour of digital payment channels. Yet, the importance of cash for day to day transacting in Zimbabwe`s highly informalised economy cannot be overlooked, making it near indispensable in some quarters. All this just adds to the growing complexities of Zimbabwe`s economy.

New notes inflationary?

All told, the issuing of the new ZW$10 and ZWL$20 will likely be inconsequential in the grand scheme of things. The RBZ insists that it is carrying out the exercise in a money neutral way, which will not lead to a growth in money supply. If the authorities deviate from this course however, they will only quicken inflation.

 Although some sentiment is that since the RBZ already has a hole in its balance sheet, the issuance of the new notes increases money supply, and is therefore inflationary. The new notes may even cause the older ZWL$2 and ZWL$5 dollar notes to further drop in the pecking order, resulting in some merchants ceasing to accept them as a medium of transacting. This has happened before in the past.

 A split cash rate for obtaining US dollars on the parallel market, with the ZWL$20 note fetching more US dollars than the ZWL$10 note may also be another unintended effect of the new series of notes. All this to say that this new exercise of issuing new notes is a well-trodden path. Soon, more and higher denominated notes are going to be needed as inflation continues to wreak havoc. Cash shortages are likely not to end, in spite of the issue of these new notes.