Centre for Financial Inclusion and Literacy Consultancy says the introduction of new bank notes in the economy by the Reserve Bank of Malawi (RBM) signifies the country is far from fully moving towards adopting digital financial services.
The Reserve Bank of Malawi along with other players in the financial sector are promoting the adoption of the digital financial services to reduce on costs of printing money and with Covid-19 pandemic, use of hard cash is being discouraged as it can spread the virus as people exchange money.
RBM Governor Wilson Banda on Tuesday announced the introduction of the K5 000 banknote as the highest denomination and an upgraded K2 000 note.
The new notes were released into circulation on Wednesday this week which has since received mixed feelings.
In an interview on Wednesday, the centre’s executive director Abel Mwenibanda said having looked at the rationale of the RBM to introduce a K5 000 note and a K2 000 with new security features, it portrays the country’s predominant use of cash as opposed to digital facilities.
Mwenibanda said: “If the trend is left unchecked, we will always come back to this point where even the K5 000, will account for more than 80 percent in the circulation as is the case with the current K2 000 and its associated cost in terms of usage and production.
“In view of the RBM’s action, the perceived socio-economic effects thereof and the quest to break the cycle as far as the usage and production of banknotes is concerned among others, there is an urgent need to provide and embrace digital financial services with attention to affordability and privacy parameters”.
Mwenibanda cited Zimbabwe as an example, which he said was quick to aggressively promote use of digital financial services when it was hit by a worse situation than Malawi’s and it is now reaping some fruits as a more cashless economy.
He said the cost of using and producing banknotes and also the perceived socio-economic effects of the decision, will in the long run haunt Malawians and the economy at large.
Reacting to the concerns, RBM Governor Banda defended the central bank’s action, saying Malawi still remains largely a cash economy, adding that the majority of Malawians are still using cash as a medium of exchange.
Banda said since the introduction of the K2 000 note, there have been a lot of economic developments that have necessitated the review of the denomination mix and introduction of a higher denomination as well as upgrade of the K2 000 fitted the bill.
The Governor said among other things, the policy guides that the highest value denomination should not account for more than 60 percent of the total value of currency in circulation.
He said: “When that happens, the bank can apply a number of measures one of them being introduction of a higher banknote denomination. In the present case, our highest value denomination, the K2 000 banknote, has been above the 60 percent threshold for some time and has hovered above 80 percent.”
RBM last introduced a higher denomination note of K2 000 on December 19 2016.