The Rebasing of the Zambian Kwacha Currency

 

1 And 2 Ngwee Coins - 1983

One of the major milestones in the resolve of the new Patriotic front Government to improve the Zambian economy, is the step that has been taken to rebase the Zambian Kwacha in order to improve the efficiency of doing business. The time that will be taken to complete high cash value transactions would be greatly reduced as people will have to transact with less Kwacha bulk in high value transactions.

In simple terms, currency rebasing is the division of a currency unit by a particular denominator to remove the zeros on the currency. In the Zambian situation, the Kwacha has been rebased using the denominator of 1000. In short, the Kwacha is being divided by 1000 in order to remove its zeros(000) so that K50,000 becomes K50, K20,000 becomes K20, K10,000 becomes K10, K5,000 becomes K5, K1,000 becomes K1, K500 becomes 50 ngwee, K100 becomes 10 ngwee, and so on. 

It is important to note that the value of the kwacha will note change. It will remain the same. If for example; the value of the Kwacha is K5000 to ($1) one USA dollar, it will now be K5 to ($1) one USA dollar. The same amount of goods that a K10000 note pays for now, will be the same amount of goods that a K10 note will pay for. In other words rebasing does not increase the purchasing power of a currency.

Since the announcement was made that the Zambian Kwacha will be rebased by removing the three Zeros from the Kwacha and that coins will be re introduced for smaller denominations, there have been a variety of explanations that have been offered by different persons including economists about the effects of rebasing a national currency. The central Bank of Zambia has started running full page articles in respective newspapers too.

Most people who have written or spoken on this subject have offered very useful explanations and education about what rebasing is, in a way that can easily be understood by the general literate population.

A much more elaborate explanation of rebasing was offered by Winford Sichiliango in his article published in the Zambia Daily mail of February 15, 2012.

In the article, Mr. Sichiliango has covered a lot of areas including the risks and effects associated with lack of education about the rebasing of currency among the people in the remote rural parts of Zambia and those in urban areas who are not fairly enlightened. 

One  issue that has not been dealt with in most of the information that has been given by those that have attempted to educate the public on the issue of rebasing, is the question of divisibility.

Would the rebasing of the Kwacha improve divisibility of the Kwacha? The current Kwacha has a problem of divisibility. Divisibility is one of the properties of a good currency. There have been times when a person buying an item using a bigger Kwacha denomination has had to be asked by a cashier for an additional note in order to make it easier to issue change to the customer. For example, a person who buys something for K6000 using a K10000 note, would be asked by a cashier to add another K1000 either as a single note or other notes amounting toK1000, to the K10000 that he tendered to the cashier so that he can be given a single K5000 note as change. Does rebasing solve this problem?  

The other issue that might be problematic if not properly managed will be the pricing under the new Kwacha in case of upward movements in prices, especially bus fares. There is a general tendency with minibus and Taxi operators to increase fares by margins of K500 each time there is an upward movement in the price of fuel. Under the new rebased currency, such an increase will entail adding a margin of 50 ngwee if we follow their trends. 

The K500 that is usually increased by minibus and Taxi operators is contrary to what the RATSA (Road and Traffic safety Agency) approves. RATSA normally approves fares in the range of K200 each time there is an upward movement in the price of fuel. In most cases these operators have adjusted fares in defiance of the approved fare charts. I foresee a general temptation for these operators to adjust fares by K1. Fares might be adjusted in the following pattern; from K3.00 to K 4.00 to K5.00 and so on, instead of say, from K3.00 to K3.20 to K3.40 to K3.60 etc.

In remote parts of Zambia, there is need to educate the people by putting across messages about the rebasing of the currency in a language that they can easily understand during the change over period when the old and the new Kwacha will run concurrently. There may be serious cases of fraud in the remote parts of Zambia if the message is not put across in a more effective manner. For example a cow in Zambezi that is valued at K500,000 by the current Kwacha will sell for K500 using a rebased brand new K500 note. A witty conman might buy the same cow at K500 using a brand new K500 note of the soon to- be fazed out currency. That would cause the poor man in Zambezi to lose an equivalent of K4,999,500!

The good side of the rebasing of the kwacha would be the beauty of the practicality of carrying an equivalent of the current cash payroll of say K300,000,000 in a pair jeans’ hip pocket! That is if a rebased K100 note is issued. This will be the equivalent of a K100,000.

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