Chief Economist Chifipa Mhango offers advice for RBM to consider introducing a K10,000 bank note

* Looking at how the economy is moving on inflation rate, and if the trend continues, surely that is inevitable

* For a central bank, introducing new bank notes or coins is determined by the inflation rate position

By Duncan Mlanjira

The K5,000 bank note being the highest currency note is now under challenge in terms of cost of transaction due to the rising cost of goods and services following the high rate of inflation of around 30% on average in 2024.

This has been observed by Don Consultancy Group (DCG) Chief Economist, Chifipa Mhango, emphasising that for a central bank or the reserve bank, introducing new bank notes or coins is determined by the inflation rate position.

“Recently in Malawi, we have observed a rising cost of goods and services,” says Mhango, who is DCG director of economic research & strategy. “What that means is that, if the highest currency bank note is now MK5,000, it is now under challenge in terms of cost of transaction. 

“For instance, if one bottle of Orange Squash — popularly known as SOBO — has now moved from MK6,000 to MK12,000, it means the bank notes required to buy that 2-litre bottle is now two MK5,000 bank notes and an extra MK2,000 note or two MK1,000 notes.

“Which means three or four bank notes are required at MK12,000 price, instead of two when the price was MK6,000. So in real terms, with high inflation rate, the cost of currency transaction is now very high in Malawi.

“In summary, you need more bank notes to buy the same product of SOBO than before. This is simple transaction economics which is inflation-rate driven.”

Mhango takes cognizance that the Reserve Bank of Malawi (RBM) refuted reports that circulated on social media indicating that the central bank was in the process of introducing a K10,000 bank note.

But he says such a move is “realistic as proper transaction response to the current economic situation and reflective of the cost of living in the country”.   

“The case used here is of SOBO, but you can apply this for any product — hence the proposal for a MK500 coin also suits the current economic environment.

“The Reserve Bank of Malawi is within its mandate to introduce bank notes or coins that reduce transaction costs based on inflation rate, which is now about high cost of living.”

Mhango, who is also Alliance for Democracy (AFORD) director of economic affairs implored on Malawians not to blame the RBM should it go ahead to introduce the K10,000 note if the trend of the inflation rate continues to rise, saying the blame should go to the State authorities “that have messed up the economy at the fiscal perspective and trade & industry policy perspective”.

“These are those in charge at Government political heads. Printing of new bank notes or coins, has no exchange rate movement — this is just an inflationary reaction to the currency transaction in the economy, to reduce transaction cost.”

Such kind of advice for the government to act sooner than later to control challenges of the country’s economic trends, was also suggested in August last year to consider “reasonable” upwards adjusting of prices of fuel.

But up to now, the government has not heeded that advice that came from the Parliamentary Committee on Natural Resources & Climate Change as well as Consumers Association of Malawi (CAMA).

Following a meeting that the Parliamentary Committee — chaired by Werani Chilenga of the opposition Democratic Progressive Party (DPP) — had with Malawi Energy Regulatory Authority (MERA) on August 26 to understand the issues surrounding the importation of fuel and fuel levy collection, it was recommended that MERA should reasonably adjust upwards prices of fuel.

However, committee emphasised that “the adjustments should be strictly for the purposes of cost recovery and not for increasing profits” and to “keep in mind the hardships that people in the country are already facing as a result of the calamities that the country has gone through”.

In its report presented to Parliament on August 28, the committee stressed that to ensure the continuity of service provision in the country, the need “to adjust the fuel prices cannot be overemphasised”.

The committee called for the meeting with MERA taking into consideration of the devaluation of the Malawi Kwacha by 22% in May 2022 and the subsequent 44% depreciation of the local currency which was effected in November 2023.

On its part, CAMA also added credence to the calls for MERA to increase the pump price, saying the Authority has for a long time been holding back upward adjustment of fuel price which has resulted in the accumulation of heavy losses by the petroleum importers.

Thus CAMA was requesting MERA “to immediately adjust prices of fuel to avoid unnecessary impending fuel scarcities that will hurt both the consumer and the whole economy,” said CAMA, a fear that came to pass as almost immediate, the country was plunged into serious scarcity of fuel, whose effects are still being felt.

As prices of basic household commodities are skyrocketing, the public expressed worry that the MCP-led government seemed not able to control the inflation of the kwacha, while also expressing the fear that what the situation will be once fuel prices, which the government is subsidising, will be allowed to be increased.

Others attested that transport fares are also rising in order to meet the demand of rise of prices of basic commodities, with one observer giving an example that the stretch from Malosa to Zomba City is now at K6,000, which was at K2,000 in August last year.