High-denomination Congolese notes of up to 10,000 francs ($11.06 U.S.) hit the streets of the capital Kinshasa on Wednesday, jogging memories of the dizzying hyperinflation under former dictator Mobutu Sese Seko that sent the domestic economy crashing.
Bank notes in Mobutu-era Democratic Republic of the Congo, then known as Zaire, included a five-million-zaire bill worth just $2 as inflation hit all time high rates of nearly of 24,000 per cent in 1994.
President Joseph Kabila’s government say the new notes are needed because of the steady depreciation of the Congolese franc that has made many turn to the U.S. dollar as the hard currency.
The government said it has prices under control and enough foreign currency reserves to prevent inflation taking off again.
“The context is stable and propitious, the time is right,” Jean Louis Kayembe, director of the central bank’s monetary policy committee said in an interview as the new 1,000, 5,000 and 10,000 Congolese franc notes were this week progressively rolled out across the country.
Up to now the largest note available in Congolese francs has been 500.
“Inflation is not [a risk]; our economic policy at the moment is prudent, one that is not injecting a mass of money beyond the needs of the economy,” Mr. Kayembe said.
Although many of Congo’s economic indicators remain firmly in the red – four-fifths of the population live on less than $2 a day, unemployment is running at 75 per cent and the country came bottom of a UN development index last year – the government has been praised by the International Monetary Fund and other financial institutions for wrestling the economy back under control.
The minerals-rich central African nation is on course to hit single-digit inflation in 2012, and growth, largely driven by the country’s increasingly productive mining sector, is forecast at 6.5 per cent this year down from 7 per cent in 2011, according to the central bank.
With foreign reserves estimated at $1.4-billion, the country’s central bank is confident that the time is right to introduce the new bills, with plans to launch even larger denominations of 20,000 and 50,000 francs in the future.
But to some in Congo, the new notes remind them of the old Zairean currency during the turbulent years of the country’s economic history with denominations ranging from one to five million.
Small traders have also expressed concern that the new notes will make it difficult for them to do business.
“I’ve seen the new notes, but I sell bread. I think they won’t help. I sell bread for 200 francs; if someone buys two loaves of bread with 10,000, I won’t have the change to give them,” said a bread seller in Kinshasa.
“Customers will leave because they don’t want to waste time waiting for the change. I’m going to lose from this,” she said.
Congolese authorities also hope the higher denominations will wean people off U.S. dollars. The impracticalities of the exchange rate and a lack of confidence in the Congo franc has meant that more than 90 per cent of all transactions are still done using mostly dollars.
The IMF’s mission chief in Congo, Robert York, said the macroeconomic conditions are in place to avoid sparking inflation and that the change was an important step on the way to empowering Congo’s currency.
“The new notes should support Congo’s growing economy by facilitating day-to-day transactions and reduce costs related to the current small denominations,” Mr. York said in an e-mailed statement.
“In this way it will also contribute to … de- dollarisation; a process that will take some time to achieve.”
Mike Mbobole, who runs a foreign exchange bureau in Kinshasa, said there might be some speculation on the new notes which could destabilize the exchange rate, but that he was confident the government will keep a lid on inflation.
He said the new notes will make transactions easier, in a country where it was not uncommon to see customers filling plastic bags and suitcases full of Congolese francs at the bank.
“Today, if you want 10 million Congolese francs, that’s going to be whole sacks of money, but with the new 10,000 and 5,000 bills, we won’t need as many,” he said.