New Banknotes Elicit Hopes and Fears in DRC

By Mauro Teodori Reprint | | Print |

KIKWIT, DR Congo, Jul 5 2012 (IPS) - “The macroeconomic climate is looking good, with a growth rate varying between five and seven percent,” said Jean-Claude Masangu, governor of the Democratic Republic of Congo’s Central Bank as he justified the release of new denominations of the Congolese franc.

According to Masangu, the time is right for the release of new, high-face-value bills: 1,000, 5,000, 10,000 and 20,000 franc note will enter circulation beginning this week, from Jul. 2.

“The goal is to fight against the dollarisation of the national economy in such a way that Congolese are encouraged to use the franc as a stable, trustworthy and secure currency, not simply for making change,” Masangu said during a press conference at the Central Bank’s (BCC) headquarters in Kinshasa, the Congolese capital.

Masangu also stressed that the rate of exchange has remained remarkably stable at 920 Congolese francs to the dollar, and that the country’s currency reserves are healthy: at the start of June, the Central Bank had reserves sufficient to cover two months of imports of goods and services. This would help the BCC to intervene in the markets in case of disruptions.

“The public purse is showing an unprecedented consolidated balance surplus, and these new denominations have a face value that is appropriate to the present system of payment,” he explained.

According to Masangu, the BCC’s research reveals worsening dollarisation of the economy – nearly 90 percent of transactions in DRC are carried out using U.S. dollars.

The Central Bank governor stressed that there’s simply not enough of the country’s own currency for the country’s rapidly growing economy. “Eighty-five percent of bank accounts are in foreign currency, a total of 10.8 billion dollars.”

The introduction of the new banknotes will make it easier to carry out transactions – especially large ones – using Congolese francs, while reducing costs for economic actors.

But some experts have expressed reservations.

“Can the monetary authorities properly control the quantity of bills which will now be in circulation?” asked Mari-José Asaï, a lecturer at the Faculty of Economic Sciences at the University of Bandundu, in the southwest of the country.

Asaï fears that if the amount of actual banknotes in circulation does not correspond to the volume of goods and services in the market, and demand for the currency is high, this will lead to inflation. “I’m afraid the new denominations will not be supported by those with lower face values,” she said.

“In our experience, when there are larger denominations, people automatically refuse to accept the small ones.” But, she explained, to avoid provoking inflation due to a shortage of currency, both the new large denominations and the existing supply of notes with lower face value must be widely accepted for general use.

Israël Tawa, an accountant and administrator at the same university, said that when it comes to monetary policy, the past has important clues for the future.

“The decade from 1990-2000 was also notable for the issuing of banknotes with very high face values, up to five million zaïres (the former currency). We experienced hyperinflation estimated at around 4,000 percent,” Tawa said.

He thinks that the new notes raise the risk of inflation if demand for them is too strong.

“Our business climate is already contaminated by the presence of many foreigners, including Indians, Pakistanis, Chinese in the economy. This is not beneficial in terms of sales, earnings and transactions,” said Jean-Pierre Kasereka, who manages La Maison Jésus Miracle, a business based in Kikwit. These new banknotes, he added, risk aggravating the situation.

“In 1994, my business activities recorded a drop of 48 percent following the issue of high-denomination bills by the government of the time. I don’t want to have another collapse this time,” said Louis Kipuluhashi, another Kikwit business owner.

“The BCC and the government only needs to increase the supply of 50, 100, 200, and 400 franc notes, instead of turning to these big banknotes which will hurt prices for the more than 60 percent of Congolese who live on less than a dollar per day,” suggested Ruphin Kibari, a member of civil society.

Vincent Ngonga, director of the mint at the Central Bank, sought to ease these fears. “We will only release eight million Congolese francs’ worth of the new bills. The country’s population is more than 60 million. These banknotes will be uncommon and there won’t be any inflation,” he said, during an awareness campaign presently taking place around the country.

Ngonga added that the monetary authorities will reinforce the money supply with smaller notes.