NEW CEMAC BANKNOTES COULD TRIGGER FALL IN PRICES – EXPERT

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NEW CEMAC BANKNOTES COULD TRIGGER FALL IN PRICES – EXPERT

A fiscal expert has hinted that the move by the Economic Community of Central African States to introduce new bank notes may in the long term, yield a fall in prices. Dr Jean Cedric Kouam, Head of Monetary and Fiscal Policy at the Nkafu Policy Institute think tank enumerated the possibility as one of many possible reasons for the banknote renewal process.

The process of renewing the range of bank notes, Dr Jean noted in a recent paper, is more of a traditional practice, effected by the Bank of Central African States (BEAC) every ten years. The latest move however is the first since 2002. Beyond that, he opined, may lie deeper reasons including the current global situation and marked inflation.

In January 2022, BEAC, it should be recalled, announced that in inflation pressures were likely going to be higher, in 2022 and 20233 owing to multiple factors including rising shipping costs triggered by the COVID-19 pandemic.

“…. The injection of the new banknotes has the particularity that it will increase the propensity of economic agents to hold money and therefore to consume,” Dr Jean Cedric noted, adding that “a rise in consumption will “naturally stimulate production…”

The long-term outcome, to the monetary and fiscal policy expert, is that the rise in production “could result in a fall in prices.” He further argued that the introduction of new banknotes is set to increase the speed of circulation of money, and not necessarily the quantity.

Still connected to the global situation, BEAC is obliged to maintain certain standards “including ensuring the security and durability of the notes.” To Dr Jean Cedric, the change will therefore place a tight noose around the falsification of and counterfeiting of the currency.

FCFA is not going away soon!

Despite the possible intentions and the awaited action by BEAC in the banknotes changing process, Dr Jean Kouam maintains that CEMAC countries are still a long way away from dumping the CFA franc. The introduction of a new rang of banknotes still FCFA, he argued in his paper, “undoubtedly reflects the commitment of the member states to perpetuate these cooperation agreements, which means that the CFA franc has several more years of life ahead of it.”

Regardless of its possibly well-meaning efforts, the decision by BEAC does not directly translate to strengthening the effectiveness of monetary policy. This, Dr Jean posits, “… is based on principles such as the independence of the bank and credibility of decisions taken by the Monetary Policy Committee.”

Over the past decade, CEMAC member states have witnessed increased pressure from citizens to severe ties with the CFA franc. BEAC’s ‘recommitment’ to staying leashed to the currency therefore comes as a huge blow to the campaign.

“It may be necessary to wait until the next decade (when a new range of bank notes will be introduced) to see it appear,” advices Dr Jean Cedric.

The swapping process

The concerned FCFA banknotes include 500, 1000, 2000, 5000, and 10,000.

The first step, will be to “put into circulation on December 15, bank notes from the 2020 collection…” announced Herve Ndoba, President of the inter-ministerial committee of the Central African Monetary Union announced.

From June 1 2023 to May 31, 2024, the bank notes will be exchanged at the counters of the bank of Central African States (BEAC banks). The institution will also gradually withdraw banknotes from the 2002 period from circulation as they return to BEAC counters from January 1, 2024.

From June 1, 2024, banknotes from the 1992 period will no longer be exchanged.

 

 

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