Yesterday the RBZ revealed that they would soon be releasing a $ 100 ZWL note to the public. This comes almost a full year after they released a $50 ZWL note which is currently the biggest local currency note in circulation. Traditionally in the aftermath of such a release, the black market rate has always risen and in turn, prices would follow suit. In technical parlance every time the RBZ has released a new note there has always been an accompanying rise in inflation that ensues.

The Reserve Bank governor, Dr John Mangudya, thinks this time it will be different:

It’s not going to cause inflation because we are not printing any new money.
Individuals and businesses can only access cash based only on what they have in their bank accounts.
Dr Mangudya commenting on the pending release of the new note

It’s all about public sentiment and behaviour

Technically the RBZ is not printing new money-they prefer to do that by minting new RTGS. So from a technical perspective the introduction of the new $100 note worth around US$0.30 shouldn’t be inflationary on the face of it. However, macroeconomics is driven by sentiment as much as it is driven by technicalities. Sometimes even the best laid out policies can still be fouled by public sentiment.

There is a Shona proverb:Chisi hachieri musi vacharimwa. Roughtly translates it means that trouble doesn’t strike on the day you take the misttep. Over the past two decades the RBZ has cultivated negative sentiment with their rash and cruel policies. These are the guys that printed a trillion dollar note. Everytime they release a new note the public panics or at least perceives this as some sort of money printing that has to be factored into the rate. So the black market rate will move and with it prices because almost everyone is using the black market to determine prices and just like that up will go the inflation rate.

There is also the technical aspect. It will be a lot more easier to conduct black market trades with higher denomination notes so there will be an increase in demand as people will now have a little bit more money. But this is just a 30 US cent note so the actual impact will be limited. What will drive inflation will be negative sentiment rather than actual technicalities.