When the need arises to be informed about the launch of new banknotes in Albania, the only information that you can read through articles and news portals are headlines such as: “what will the new banknotes look like”, “what will happen to the old banknotes”, “When will they be put on the market” etc. and no analysis about the direct or indirect impact that these banknotes will have on the country’s economy.
But let’s do a simple analysis of why these banknotes are being launched on the market? What impact do they have on the economy and who will they serve?
The Governor of the Bank of Albania, Mr. Gent Sejko, in an interview for the media gave explanations regarding the reasons for the issuance of a denomination of a higher value of banknotes, which according to him meet the market demands. He states that: “printing of new 1,000 and 10,000 lek banknotes is part of the continuation of a multi-year work of the Bank of Albania to issue the new series of Lek banknotes, as well as to guarantee at all times the supply of printed money to the economy”.
Does the Albanian market really need these banknotes? Here are some arguments…
Everywhere in the world, the vast majority of payments and financial transactions today are being made digitally. Moreover, the future is leading us towards decentralized money, or cryptocurrencies. This is because cash purchases are usually used for small amounts and for products such as coffee, lunch, or food products.
Such purchases rarely exceed the amount of 10,000 albanian lek, but instead it requires the use of smaller banknotes.
Sellers, on the other hand, also do not prefer to be paid with large banknotes for small purchases. I am using the currency in euros so as not to get confused in examples. If one of us pays for a pizza that costs € 4 and the seller is given a € 100 bill, it is not at all practical for the seller, so he will ask you:
– if we have a smaller banknote,
– if we can exchange it somewhere else and then pay,
– if someone else can pay for us,
– if we can pay by card,
– either the seller may have difficulty accepting the € 100 banknote or even reject it.
On the other hand, it is also high risk for each of us to carry large amounts of money in our wallet, due to loss or theft.
According to a 2012 survey, consumers usually carry only € 56 per person. This is because most of the largest purchases, ie those over € 100, are usually made by credit card or check. On the other hand, purchases that require a large amount of money, such as cars, houses, etc., are made by direct bank transfers. Simply put, the new 10,000 lekë banknote does not have much use as it is not practical in everyday life.
According to economists, the launch of high-denomination banknotes may give us the impression that this is a reasonable solution for the economy, but in fact it is only seen as a poor way of managing the economy.
The issuance of these banknotes will not only make those with lower value “greedy”, but they will also increase inflation and the cost of goods will also increase. According to economists, this is a form of suicide for the country’s economy in the long run. To escape this abyss, governments will end up printing more money rather than trying to lower it. This will form a domino procces towards the rampant rise in inflation.
This explains that printing more money does not increase economic output but only increases the amount of money circulating in the economy. If more money is printed, consumers are able to demand more goods, but if buisnesses still have the same amount of goods to offer, they will respond by setting higher prices. So in a simplified model, money printing will simply trigger inflation.
Let us take an example: According to studies, with inflation rates of 2% or more, the € 100 banknote around 2050 will have the value of the 50 euros we have today. While in 2100 it will have the value of € 20 that we have today. Still a few years later with the same € 100 banknote today, we could only buy a pizza and a kabab.
Therefore, let us not be interested in the beauty of banknotes but in what it will bring to the economy.
But who do these high-denomination banknotes that will be launched in Albania serve?
Analyzing this phenomenon through this prism, American economist Kenneth Rogoff argues that high-denomination banknotes are mainly used by criminals and tax evaders. By removing these cuts and forcing criminals to rely on smaller cuts like € 5 or € 10, Rogoff claims the crime would become a less lucrative endeavor. As for tax evaders, they will be pushed into the formal economy. This, he claims, would be beneficial to government finances. With less tax evasion, government revenues would increase.
Rogoff also opposes the introduction of a new super banknote, for the same reason he calls for a ban on those $100s. A new super banknote, say a $1,000 banknote, would be an aid to tax evaders and organized crime.
According to banker Peter Sands, $10 million in the form of 100-dollar bills weighs 10 kilograms, an amount a drug dealer can hide and carry in seven suitcases.
On the other hand using large $ 1,000 banknotes, the crime is aided as the same amount can be hidden or transported in a single suitcase without being too conspicuous. On the other hand, for tax evaders it will be easier to pay a contractor with large banknotes.
Crime and tax evasion seem to be two interesting reasons that fit into the current situation in Albania. So, under the words of Governor Sejko, the question arises: will the banknotes that are being launched in Albania serve the market and the population or the concealment of crime and tax fraud?
Of course it is up to you to decide, so make sure you care less about the beauty of the banknotes and more about what this will bring to our economy.
