An internal memo from the Reserve Bank of Malawi (RBM) Currency and Protective Services Department says since the K500 note was introduced in 2001, several socio-economic developments had taken place, especially after the 2004 general elections.
The memo says there had been a noticeable increase in economic activity from all sectors as evidenced by the growth of 203.7 percent in nominal gross domestic product (GDP) between 2001 and 2007.
â€œHowever, part of that growth was eroded by prices which increased by 100.3 percent during the same period,â€ it reads in part.
â€œSuch increase in prices indicates that over the years, the purchasing power of the kwacha has been weakening since the value of a currency depends on what you can buy with it rather than the face value.
â€œThis now raises the question of whether it is time to introduce a higher kwacha bank note denomination to cater for the increase in the number and volume of transactions as a result of economic growth and price increases,â€ it further reads.
The communication raises six arguments on why the K1 000 note was important although the department also notes that the use of large denomination bank notes would facilitate illicit activity, including money laundering, drug trafficking and tax evasion.
One of the factors that led to the idea to introduce a higher note, as noted by the central bank, was that governmentâ€™s excessive borrowing before 2004 and high inflation ate away the value of the currency.
The bank says when such developments take place, most governments issue higher denomination notes which it says did not happen in Malawi when the K500 was weakened, especially between 2001 and 2007.
â€œAccording to a study done by De La Rue, one of Malawiâ€™s bank note suppliers, the K1 000 note was supposed to have been introduced in 2004. The delay to introduce a higher denomination bank note has resulted in people carrying large volumes of cash to facilitate transactions,â€ it says.
It further says the economic growth from 2004 justifies the need for a higher bank note because more people are entering the market economy where increased trade in both agricultural and non-agricultural goods was being increasingly facilitated through cash transactions.
The bank also says the rule of thumb is that highest bank note denomination in a country should be five times the average dayâ€™s pay and that Ministry of Labour estimates show that the average daily wage in Malawi in 2008 was K740 which meant that the highest bank note should be K3 700, rounded up to K4 000.
â€˜Inflation will not riseâ€™
RBM governor Dr Perks Ligoya assured Malawians last month that the introduction of the new higher banknote, which is expected to hit the market by the beginning of the new financial year, would not trigger a rise in inflation.
However, Chancellor College economics professor Ben Kaluwa earlier said the coming on the market of a K1 000 note, although it will ease transactions, is a symptom of problems in the countryâ€™s economy.
â€œWhen inflation is going up, there is need for a higher circulation note, so the new K1 000 note reflects the demand for a higher denomination,â€ said Kaluwa.
The introduction of the new banknote will also coincide with the release of reviewed currencies such as K20, K50 and K100 notes that will be reduced by over 20 percent while the K200 and K500 will be trimmed by more than 30 percent on average, according to Ligoya.
He also said the weight of coins has been reduced by over 60 percent whereas their diameters will also be smaller to make the currency easier to handle and store.
Ligoya said the new currency series would be in circulation by the time of the African Union summit in July.