Bank of Guyana (BoG) Governor Lawrence Williams has been seeking to allay fears that the decision to introduce a new $5,000 note will trigger inflation in the country’s economy.
Addressing a seminar on Banking and Investment organized by the Georgetown Chamber of Commerce and Industry (GCCI) on Wednesday Williams said the notion that the introduction of a currency note of a higher denomination will lead to inflation is a misnomer, since the circulation of the new note does not necessarily increase the money supply in the economy. Noting that inflation “actually fell” during earlier periods when larger currency notes were introduced into the economy, Williams said the introduction of the new $5,000 note was a matter of “shifting dependency from the $1,000 note to the new, larger denomination”.
The announcement of the imminent introduction of the new note has raised questions about the slow pace of the transformation from cash transactions, despite what Williams said was the availability of non-cash instruments for making payments. The BoG governor conceded that some business houses had been slow in embracing non-cash payment instruments for reasons that included the high cost of offering such services.
According to Williams, the $1,000 note, currently the highest denomination in use here accounts for around 93 per cent of currency notes in circulation, a phenomenon which he said was “putting a strain on the currency structure and imperiling the financial system.” Williams told the seminar that while international currency principles dictated the highest denomination of a country’s currency account for around 20 per cent of total currency notes or 60 per cent of the value of money in circulation this was not the case in Guyana where the $1,000 now accounted for 59 per cent of the quantity of currency notes in circulation and around 94 per cent of the total value of money in circulation.
And according to Williams, apart from the fact that a point had long been reached where large volumes of currency notes were required to conduct relatively modest transactions, the decision to introduce the new currency notes had taken account of high printing costs. He explained that up to 2010 it was costing the central bank between $600 million and $700 million in printing costs for currency notes but the introduction of the new $5,000 note would effectively reduce the volume of notes being printed.
And according to Williams, the BoG had also taken account of the risks associated with the circulation of a higher denomination currency note including possible inducement for counterfeiters and persons involved in money-laundering. He told the gathering that counterfeiting had not been a major issue for the BoG. In 2011 counterfeit notes accounted for 000.9 per cent of money in circulation. Noting that the security features on the new currency note will be significantly upgraded Williams said, “We cannot allow a criminal minority to hold the rest of the country to ransom”.
