New notes will not impact money supply

According to the RBZ, there has been a notable improvement in access to and the usage of financial services among marginalised segments of the population as reflected by the total collateral pledged as of February 28, 2025 (File Picture)

Tawanda Musarurwa

HARARE – The anticipated issuance of new notes and coins will not have an adverse impact on money supply in the countries, analysts say.

According to the monetary authorities, cash-in-circulation will slightly more than double over the next six months, as the Reserve Bank of Zimbabwe (RBZ) injects around $1 billion to satisfy legitimate demand for coins and small notes.

Although, money supply is typically associated with driving inflationary pressures, the central bank has reiterated that new notes and coins will account for part of the electronic money that is already in circulation.

“Issuance of new notes and coins will not have a significant impact on money supply in the medium to long term as the central bank has already indicated that M1 money supply will range between 10 percent-15 percent of the total money supply.

“We anticipate that the new notes would be drip fed into the system, whilst the RBZ collects and offsets old notes and coins with the new ones. New notes will in the short-term bring money circulation into the formal market as both formal and informal traders will have to resort to using for formal channels to access the new fiat money,” said market watchers IH Securities in its latest Zimbabwe Strategy Paper.

They add that the cash injection will eventually benefit the formal sector, which has for long been starved of cash as most cash was circulating in the informal sector.

“Resultantly, money supply does not materially change, however the velocity of money is expected to grow as the money circulating in the informal sector makes its way back to the formal sector.”

According to the RBZ, the new cash will entail new $2 bond coins, $2 and $5 notes of the new Zimbabwean dollar reintroduced in June this year.

The man driver to the local economy’s stagflation trap has been a growth in broad money supply, which registered growth of 78 percent from $5,64 billion in December 2016 to $10 billion in December 2018; while money supply stood at $14,8 billion as of June 2019, up 48 percent year-to-date and 67 percent year-on-year.

But the anticipated new notes will have no such impact.