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Small denomination banknotes unpopular: Central bank
Small denomination kip notes are widely circulated but people tend not to use them for commercial transactions, according to Bank of the Lao PDR Governor Phouphet Khamphounvong.
Mr. Phouphet said last week the central bank had put a large amount of small denomination banknotes into circulation but most people did not use them on a daily basis. They were mostly used for religious ceremonies, and so were scarce in markets.
He made the comment after calls from the public for the central bank to issue more small denomination notes to counter inflation. It is a common belief that the absence of small notes causes prices to rise more than is realistic.
The absence of small notes leads to traders setting prices above the true market price so they don't have to dispense small change, people say. So they are calling on the central bank to set up units to distribute small denomination notes to traders so they have plenty of small change.
Mr. Phouphet said he did not believe traders considered the lack of small notes as a reason to put up prices, since there were several payment options such as the use of credit cards and cheques.
Prices were determined by supply and demand, and prices would be high in times of short supply but low when plenty of goods were available.
Mr. Phouphet urged people to keep banknotes in good condition as the central bank had found that many were damaged after being used for religious ceremonies.
He said banknote counting machines rejected the damaged no tes, so the bank was forced to replace them sooner than anticipated. “It is expensive to produce banknotes, especially those of smaller value. The cost of producing small denomination notes is almost the same as to print large bills.”
He advised people to change the way they handled notes used in religious ceremonies, suggesting they be placed in plastic bags before being attached to money trees.
Banknotes should also not be folded to make ‘flowers' as this damaged them.
The most commonly used banknotes are the 1,000, 20,000 and 50,000 denominations.
Economists are divided over the supply of high denomination notes. Lao National Economic Research Institute Deputy Director General, Dr Leeber Leebuapao, said circulating higher denomination notes would lead to a rise in inflation, while other economists said this was not the case because the value of the banknotes remained the same.
vientiane times
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