THE COPPERBELT UNIVERSITYSCHOOL OF GRADUATE STUDIES

AN EVALUATION OF THE BENEFITS OF USING REBASED KWACHAIN THE BANKING SECTOR

The dissertation was Submitted in partial fulfilment ofthe award of the Master of Business Administration-Finance by the School of Graduate Studies Copperbelt

University Kitwe ,Zambia.

Soko Edmond E

Computer No.12497242

June 2014

DECLARATION

I, SOKO EDMOND EDMUND, declare that this research submitted to

the Copperbelt University is my own work and all the work by

other persons has duly been acknowledged and this research has

never been submitted previously to this or any other university

for this purpose.

Date…………………………………………Signature…………………………………..

SOKO EDMOND EDMUND

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DEDICATION

This thesis is firstly dedicated to my late beloved sisters

Annunciata E. Soko and Rose Soko who would have been very

excited to see their brother graduate. I also dedicate it to

my beloved Wife, Sara Kunda Soko, Parents Mr. and Mrs.Soko

and the entire Soko family for their collaborative support

throughout this rough moment. This MBA surely belongs to all

of us.

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ACKNOWLEDGEMENT

I would like to sincerely pay tribute to my supervisor Dr.

Lubinda Haabazoka for his invaluable advice, support and

guidance throughout the research.

To Dr. Sichinsambwe whose additional and valuable

statistical guidance eased the pressure of this research

To the management of all commercial banks in Zambia both at

their Headquarters and of some branches, I render my

gratitude for understanding me during data collection.

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To my father Mr.Soko Edmond and mother Mrs. J.B Soko for the

utmost encouragement rendered to me throughout this

research.

To Mr. Kezala Kelly Mwale, Kitwe District Education Board

Secretary and Mr. Daka Ismail, Copperbelt Senior Planning

Officer, I pay tribute to you for the encouraging words

ushered to me during this study.

I will not forget my very good friends Mbale Evaristo,

Patrick Saidi Phiri, E. Mtonga and Patson Hanjele, for all

the encouragement throughout this research work.

As to my beloved wife, Sara Kunda for unselfish sacrifice:

she allowed me to reduce family attention for the sake of

this study. I am highly indebted and grateful.

Finally, above everything else, I wholeheartedly thank my

Creator, Jehovah God and His Son Jesus Christ, for the gift

of good life and protection throughout my life.

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AbstractFollowing the Bank of Zambia’s decision to rebase the Kwacha

in 2012, this study was conducted to evaluate the benefits

of using the rebased Kwacha in the Banking sector. The study

was guided by the following research objectives: To

establish whether the use of rebased kwacha has simplified

the accounting records in Commercial Banks, to find out

whether rebasing of kwacha has reduced the transaction costs

in the banking sector, to investigate whether the rebased

kwacha has improved the operations of the automated teller

machine(ATM) of the banks, to analyze as to whether the use

of rebased kwacha has brought efficiency in the payment

systems in banks and to investigate if the use of rebased

kwacha made banking services more convinient and reliable.

The researcher used both primary and secondary data. The

primary data was collected from commercial bank staff of

which 18 of 19 banks in Zambia participated by the use of

self-administered questionnaires and semi-structured

interviews. Secondary data was obtained from published

materials, which included journals, textbooks magazines,

internal reports and newspapers. The quantitative data was

analyzed using Statistical Packages for Social Sciences

(SPSS) and results presented.

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Qualitative data was analyzed using the interview responses

from the bank officials.

Therefore, generally, with the combination of both

quantitative and qualitative analyses, the research study

broken into several hypotheses produced the following

results:

The use of rebased kwacha has simplified the

accounting records in the banking sector in Zambia.

The use of rebased kwacha has failed to reduce the

transaction costs in the banking sector.

The use of rebased kwacha has failed to improved ATM

operations in the banking sector.

The use of rebased kwacha has successfully resulted in

Payment System Efficiency in the Banking sector.

The rebasing process has successfully made banking

services be more Reliable and Convenient.

The researcher made the following recommendations for

further research:

The impact of the rebasing process on Foreign Direct

Investment and investor confidence.

Critical examination of how rebasing has impacted on

the performance of kwacha on the foreign exchange

market.

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Impact of rebasing of kwacha to the Zambian

marketeers:Case study Chisokone Market in Kitwe or City

Market in Lusaka or any large market place in Zambia.

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CHAPTER ONE

RESEARCH BACKGROUND

1.0 Introduction

The importance of monetary stability is derived from the

significant independent influence of monetary change on the

subsequent course of economic activity. If any nation’s

currency did not matter at all or were of only minor

importance in affecting the flow of expenditure, income, and

price, monetary stability would be of little relevance.

However, a stable monetary environment is crucial to achieve

economic stability encompassing both stable prices and real

growth immune to wide swings. The essential element required

to generate a stable monetary environment is systematic

policy, so as to minimize monetary shocks to the

expectations of economic agents.

Therefore, the performance of any nations currency in the

foreign exchange market and other domestic markets, is a

very critical component to achieving monetary stability and

country’s economic welbeing. Stable and moderately

predictable currency whose movements range are marginal,

don’t only portray the health of that economy, but is in

itself an investment as it has the capacity to trigger

economic activities hence results into much needed economic

growth.

1 | P a g e

On the contrast, a deteriorating and fast weakening currency

on the foreign exchange market is mostly an indication of

serious economic reversals which can result into

disinvestment thereby raising inflation and further

worsening that local currency.It is from this background

that monetary economists such as central bankers need to all

the time pay enough attention to monitor and check the

behaviour of the currency not only within the domestic

economy but also on the foreign exchange market. During the

monetary policy execution,the Central bank must be very

proactive on the type of instrument and economic tactics to

apply in order to stabilise the economy and the currency to

make it more and more competitive. Some of the tools used

could be the operations at open market,others by controlling

the money supply through the bank fractional reserve ratios.

Sometimes the Central Bank can institute a particular

currency reform,such as Rebasing or redenomination of the

currency, just to stabilise the monetary system. It is a

known fact that many countries have over the years performed

redenomination exercise in their economic history for many

reasons; but mainly it is to try to achieve the much-needed

monetary/economic stability by having a credible local

currency. Some countries with recent redenomination are:

Turkey (2005), Romania (2005), Azerbaijan (2006), Ghana

(2007), Venezuela (2008), Mozambique (2008), Zimbabwe (2006,

2008 and 2009), among others. These redenomination generally

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involve reducing the value of the currency by a factor of

ten (Mosley, 2005) mostly to control inflation and sometime

for change in currency as a prerequisite for joining a union

(for example countries joining the European Union are

required to change their currency to Euro). The aim of

redenomination could be for economic and political, as in

the case of Afghanistan in 2002 that was aimed at helping

the country better come out of economic decline after years

of civil conflicts (Woodruff, 1999; Mosley, 2005). A more

recent example of a country, which has rebased or

redenominated is Zambia in 2012 by knocking off the last

three zeroes from kwacha. This was done due to several

reasons that will be outlined in this research. Therefore,

this research is aimed at evaluating the benefits that

accrued to the Zambian commercial banks because of using

rebased kwacha.

1.1 Background Of The Study

The name of currency, “Kwacha” is derived from the Chewa

word for "dawn", alluding to the Zambian nationalist slogan

of a "new dawn of freedom". The name ngwee translates as

"brightness" in the Chewa language (Linzmayer, 2012).Since

independence in 1964, Zambian Kwacha has undergone different

shapes and forms. Few years after independence, the Currency

Act of 1967 was enacted to indigenize the monetary system.

Therefore, on 16 January 1968, the pound was replaced by the

kwacha with the new official rate equal to one half the old

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unit, or US$1.The 5-pound note became 10 kwacha, the 1-pound

note 2 kwacha, the 10-shilling note 1 kwacha, and a new 50-

ngwee note was introduced to correspond to the old 5

shillings. At the same time, the currency was decimalized.

It will be interesting to note that this was the first

redenomination of Zambian currency.

Five-kwacha notes were introduced in 1973, the same year

that the last 50-ngwee notes were issued 50-kwacha notes

were introduced in 1986, with the 1-kwacha note being

replaced by a coin in 1988. 100 and 500 kwacha notes were

introduced in 1991, followed by 1000, 5000 and 10,000 kwacha

in 1992, when the 5 and 10-kwacha notes were replaced by

coins and the 2 kwacha discontinued. In 2003, 20,000 and

50,000-kwacha notes were introduced (Ibid)

Before 1991, all Zambian banknotes featured a portrait of

President Kenneth Kaunda on the obverse. After 1992, all

notes have instead featured a fish eagle on the obverse; all

the reverses featured the Chain breaker statue. This

currency reform depicted the second form of redenomination.

In 2003, Zambia became the first African country to issue

polymer banknotes.

In the late eighties and early nineties, Zambia experienced

a severe economic crisis emanating from poor governance,

high expenditure and oil crisis. As a result, the currency

suffered from high inflation most of 80s the 90s. During

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this period of high inflation rates, commercial banks were

facing high cash based transaction cost because relatively

large quantities of notes were needed for transactions.

There was also high risk involved in cash based transaction

to the banks and their clients. Bank customers were becoming

more uncomfortable carrying huge quantities of cash to and

from the banks.Customers also had to spend more time at the

banking halls to get served. These and other factors reduced

the interest and confidence of the general public in the

banking sector. The banks were increasingly finding it

difficult in maintaining bookeeping and statistical records

and ensuring compatibility with data processing softwares.

The high cash balances resulted in a strain on the payment

systems especially the ATMs as they had to churn out huge

quantities of notes on a daily basis to satisfy clients

demand for cash.

Therefore, after the Patriotic Front government took over

power from the Movement for Muilt-party Democracy (MMD) in

2011, it decided to institute another currency reform in

order to deal with this currency imbalance and send a signal

that the once high inflation in the Zambian economy is

something of the past. The Bank of Zambia (BOZ), the

Zambia’s central Bank facilitated this exercise, which is

called rebasing. Currency rebasing or redenomination,

according to Bank of Zambia(2012),involves the dividing of a

currency unit by a defined denominator and adapting that

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rebased currency to every amount expressed in both notes and

coins.

Therefore, on 22 August 2012, the Bank of Zambia issued a

press release stating that the changeover date for the

rebased currency had been set as 1 January 2013. (The new

ISO code was ZMW. On January 1, 2013 the new Zambian Kwacha

was introduced at a rate of 1000 old kwacha = one new

kwacha.

Therefore, this study is meant to evaluate the benefits of

using rebased kwacha in the banking sector .The paper will

try to investigate whether the benefits have been accrued

to the banks in the pro-rebasing era,and these are

Simplification of the Accounting Record, efficiency in the

payment systems, improvement in the ATM operation, Re-

introduction of the culture of using coins in Zambia and

reduction in transaction costs to the Banks.

It must be known that throughout this research, the word

Rebasing will be used interchangeably with Redenomination.

1.2 Statement of the Problem

In the early 1980’s the Zambia economy faced a severe

economic crisis, stemming from poor governance, overspending

and other external factors like oil crisis including the

slumping of Zambia’s major exporter, Copper at the London

Metal Exchange Market. As a result, the Zambia Kwacha

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suffered from very high inflation throughout the 1990’s and

parts of 2000’s, which rose up to 108% in 1987-88.

During this period of hyperinflation rates,the prices of

both goods and services short up making the currency lose

its value very fast so much that people had to start

carrying a lot of cash to buy a small

commodity.Therefore,the credibility of the kwacha was

lost.The combination of the loss in the credibility and the

loss of its value,the kwacha experienced an accelerated

depreciation against major currencies.Despite the

interference on the foreign exchange market by Bank Of

Zambia,the kwacha never recovered. It is at this point that

some few remaining investors and other business people

disposed off the kwacha to keep their cash in a more stable

currencies like US dollar.The continued loss of value and

further depreciation of the kwacha made commercial banks

face very high cash balances.Therefore the cash based

transaction costs increased because relatively large

quantities of notes were needed for transactions. There was

also high risk involved in cash based transaction to the

banks and their clients. Bank customers were becoming more

uncomfortable carrying huge quantities of cash to and from

the banks. These customers also had to spend more time at

the banking halls to get served. These and other factors

reduced the interest and confidence of the general public in

the financial sector affecting banking businesses.

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On the other hand, there was increasing difficulty in

maintaining bookeeping and statistical records and ensuring

compatibility with data processing softwares. These large

cash balances reduced the processing of the same cash,hence

making all the bank services become very

unreliable.Further,the increasing high cash balances also

resulted in a strain on the payment systems like the ATMs

especially just after 2000 when ATMs were first introduced

in Zambia,as they had to churn out huge quantities of notes

on a daily basis to satisfy clients demand for cash,hence

reduced the efficiency in the payment systems.

In an effort to reverse the economic distortions, the

Zambian Government through the Bank of Zambia, instituted

this currency reform called Rebasing but commonly known as

redenomination of the currency. On 22 August 2012, the Bank

issued a press release stating that the changeover date for

the rebased currency had been set as 1 January 2013. (The

new ISO code was ZMW (formerly ZMK). On January 1, 2013 the

new Zambian Kwacha was introduced at a rate of 1000 old

kwacha to 1 new kwacha. (Post Newspaper, 2013).

The Bank of Zambia (2012), argued that it was justified to

rebase the Kwacha since rebasing or redenomination of the

Kwacha is aimed at addressing the costs associated with the

accumulated depreciation of the Kwacha since 1991, which

they contended had undermined the basic function of the

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Kwacha and furthermore created transaction difficulties. It

is argued that since inflation has been broken and Zambia

now qualified, as a moderately stable economy with high

public confidence in the economy, rebasing of the Kwacha is

ripe.

The Post Newspaper quoted Alexander Chikwanda, the Minister

of Finance highlighting the benefits of rebasing. He

explained,

"It will simplify book keeping, accounting records and facilitate easierbusiness transactions. It will further reduce the costs often incurred bybusinesses when customising standard packages, adding that the decisionto rebase was premised on government's conviction to restore the intrinsicvalue of kwacha as a medium of exchange by bring normalcy to thenumeration of the local currency.” (Post Newspaper, 01/01/ 2013)

Further benefits amplified by Bank of Zambia (2012) were

facilitating easier business transactions because it leads

to the use of smaller units of money. It simplifies

accounting and the ease of expressing monetary

values, thereby minimizing errors associated with the

inputting of financial data and time spent to review such

data. It achieves a more efficient use of calculation and

accounting record systems.

Thus, rebasing simplifies bookkeeping and reduces the

drudgery in transactions, record keeping and banking

transactions.

However, this introduction of the New Zambian Kwacha was met

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with scepticism and outright opposition in certain quarters

of the Zambian populace. Some media houses echoed unspoken

fears that the redenomination would trigger inflation. The

newspaper cited a prominent Zambian Economist,

Dr.Haabazoka .L. who highlighted this, "Maybe in the short-

run, it might cause a bit of inflation as people are going

to adjust prices upwards. So, you expect prices to shoot up

because people will have a feeling that they have lost some

savings…people might want to increase prices so that they

feel comfortable because you receive your salary in millions

and all of a sudden it's reduced. So, everyone would want to

increase the price on their rent, on the commodity to reach

that million…"(Post Newspaper, 01/01/2012)

Whether or not rebasing of kwacha has simplified the

accounting records in banks, reduced the transaction costs

in the banks, improved the operations of the ATM or brought

efficiency in the payment systems, is something that must

be left to this investigative research.

Therefore, the researcher has found it critical to carry out

an early independent evaluation of some of the benefits of

using rebased kwacha in Banks. It will concentrate on the

evaluation of the benefits to ascertain the extent to which

these expected benefits of the rebasing exercise have been

realized in the banking sector. In other words, the paper

will investigate how rebased kwacha has benefitted the

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Banking sector in the following ways: Simplification of the

Accounting Record, efficiency in the payment systems, impact

on the ATM operation, and impact on transaction costs to the

Banks. It has to be noted that the research will only

concentrate on finding out as to whether the BOZ highly

‘preached’ benefits of rebasing in the banking sector have

been achieved.

1.3 Research Questions

The research is aimed at answering the following questions:

i. Has the use of rebased Kwacha, Simplified the

accounting records in banks?

ii. Has the use of rebased kwacha reduced the transaction

costs in the banks?

iii. Has the rebasing of kwacha improved the operations of

the ATM?

iv. Has the use of rebased kwacha brought efficiency in the

payment systems in banks?

v. Has the use of rebased kwacha made banking services

more convinient and reliable?

1.4 Research Objectives

The general objective of this study is to evaluate the

benefits of using the rebased kwacha in the banking sector.

The following are specific objectives identified to

the main objective.

i. To establish whether the use of rebased kwacha has

simplified the accounting records in Banks

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ii. To find out if at all rebasing of kwacha has reduced

the transaction costs in the banking sector

iii. To investigate whether the rebased kwacha has improved

the operations of the automated teller machine(ATM) of

the commercial banks

iv. To analyze as to whether the use of rebased kwacha has

brought efficiency in the payment systems in banks.

v. To investigate if at all the use of rebased kwacha has

made banking services more convinient and reliable

1.5 Scope of the Study

This study will concentrate on evaluating the benefits of

using the rebased kwacha in banking sector in Zambia. The

study will cover all the 19 commercial banks in this

country using both headquarters and branches. The research

will cover a period from 1st January 2013 to January 2014.

However, for comparison, the researcher will be required to

refer to the period before rebasing.

1.6 Significance and justification of the study

Since the Bank of Zambia strongly argued that the New

Zambian Kwacha will be beneficial to the operations of the

commercial banks, this study evaluates the prospects of the

introduction of this New Zambian Kwacha to the banking

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sector.

Even though some people including Bank of Zambia personnel

may argue that this research is premature, as rebasing has

just been instituted, it must be understood that all the

variables that are being tested take place in the banks

almost every hour. For instance ATM operations occur every

day as customers use these machines every day and recordings

of all transactions through accounting records are an

everyday activity in all banks including bank of Zambia.

Therefore, all these variables have passed through ample

time to be investigated, as they are used frequently hence,

an appropriate change (if any) could have occurred. In fact,

the rebased kwacha is in circulation and is always moving in

and out of the banks since January 2013, meaning that some

if not all desired change has already taken place, hence

worthy to be investigated scientifically. This early

evaluation of the behaviour of rebased kwacha in banks can

help bank of Zambia to identify variables, which are not

responding well to the rebasing exercise and take

appropriate action.

This research would really help the BOZ to take certain

measures before implementing a particular monetary policy

most especially if the research results show that rebasing

has actually impacted negatively on the economy. The

researcher believes that the research work might be cardinal

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to many researchers and policy makers who might be

interested in further research in rebasing category. The

researcher has the hope that it can contribute knowledge and

also serve as a literature review for further study and

complement other research work made on similar field or

topic.

1.7 Outline of entire thesis.1.0

Chapter One

Research Background

2.0 Chapter

Two

Literature Review

3.0 Chapter

Three

Theoretical and conceptual

framework4.0 Chapter

Four

Research Methodoloy

5.0 Chapter

Five

Data Presentation and Analysis

6.0 Chapter six Conclusions and Recommendations.

The reasearch paper is organized into six chapters. The

first chapter covers, the background to the study, statement

of the problem, research questions, research aims and

objectives, scope of the study, significant of the study,

and organization of the study.

Chapter 2 introduces literature review which will further

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discuss the redenomination and provide a definition and

explanation of the key variables to facilitate the

study .The chapter will also provide the brief overview of

the financial sector of Zambia.

The third chapter will bring out the theoretical and

conceptual framework which will be derived from the the

hypotheses to be tested.

Chapter 4 will address the research methods that will be

employed for the study and the reasons for their choice.It

will include Research design,population,sampling design and

sample size,data collection techniques,data

analysis,Hypothesis and study variables.

Chapter 5 presents the data presentation, analysis and

discussion of results

Chapter 6 Conclusions and recommendation

CHAPTER TWO LITERATURE REVIEW

2.0 Introduction

In this chapter,the research will deal with Literature

review by showing the overview of rebasing(redenomination)

which will comprise definition and the rationale for

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rebasing.Further,apart from showing the experiences of

rebasing around the world,it will include outlining the

brief history of currency reforms and Banking System in

Zambia.The chapter will end with review of similar studies

and chapter summary.

2.1 Overview of Rebasing (Redenomination)

Currency rebasing has been applied on 60 occasions during

the 1960-2003 period(Layna 2006). These redenominations were

performed differently.Some countries managed to eliminate

one zero from the currency and this occured about fourteen

times.Others performed by removing six zeros(which happened

nine times). The median redenomination,in which Zambia is

categorised was by removing three zeros from the existing

currency,that is, dividing the currency by 1000. Nineteen of

the countries have used redenomination on one occasion,

while ten countries did it twice. Brazil,Yugoslavia and

Argentina have recorded as the highest users of rebasing

process,and these are six times, five times and four times

respectively.

2.2 Definition of Redenomination

Currency rebasing or redenomination, according to Bank of

Zambia(2012),involves the dividing of a currency unit by a

defined denominator and adapting that rebased currency to

every amount expressed in both notes and coins.Ahmed Bello.

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D (2011) defined currency redenomination as the process

where a new unit currency replaced the old unit with certain

ratio that is achieved by removing zeroes from a currency.

It is the looping off some zeroes from a given currency. For

the Zambian currency, rebasing was instituted by removing

the last three zeroes or dividing by one thousand (1,000).

Thus the old currency is not revalued so that the external

purchasing power of the old and the new currency remains the

same.

On the other hand, rebasing may operate in reverse. Mas

(1995), argued that redenomination also extends to adding of

zeros to the currency as recorded in the immediate post-

independence period of most nations, in few cases. Among

countries that added digits to their currencies, includes

South Africa (1961), Sierra Leone (1964), Ghana (1965),

Australia (1966), The Bahamas (1966), New Zealand (1967),

Fiji (1969), the Gambia (1971), Malawi (1971), and Nigeria

(1973).

2.3 General Reasons For Rebasing

Currency rebasing can be traced as far back as gold standard

era.In the 19th century when the gold and silver were still

used as money, governments facing shortages of these

precious metals adjusted the value of their gold and silver

coins accordingly. Such a process was called recoinage(Layna

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2006 ). This meant that rebasing process was born out of the

shortages of gold and/or silver,which merchants and other

players experienced in the early years of monetary systems.

According to Mosley (2006), the reasons why some countries

decide to redenominate their currency is a combination of

economic and political factors such as inflation, government

concerns about credibility and the effect of currency on

national identity. Mosley futher stated that the

redenomination is also related to other political variables

such as government time horizons, the governing party’s

ideology, the fractionalization of government and

legislature and the degree of social heterogeneity.

Currency rebasing is a means by which credibility of a

currency would be restored, as was the case in Turkey,

leading to reduction in the nominal value of its Lira by six

zeros (Mosley, 2005); or when countries are experiencing

hyperinflationary pressures which have the effect of making

their local currencies unattractive, as was the case before

redenomination in Brazil, Argentina and Peru (Martinez,

2007).This is most especially where domestic currencies have

lost significant value locally and internationally, to

regain public confidence in the domestic economy and the

economic policies implemented therein. Angola re-denominated

her currency in 1995 when inflation rate was 2672 per cent,

while Brazil re-denominated its currency in 1994 when

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inflation rate was 2076 percent. Many nations with high

levels of inflation also have relatively lower valued local

currencies,making large denominated currencies ’necessary

for basic transactions in the economy’(Layner, 2006).

Currency redenomination may be a means by which governments

attempt to reassert monetary sovereignty. This is usualy a

strong objective for redenomination if their citizens lose

confidence in their national currency and begin to use

foreign currencies with more stability and prestige. In this

case the government loses its monetary sovereignty to the

international capital markets and foreign central banks.

Thus the central bank no longer control the money supply

rendering it unable to ’provide lender of last resort

functions’(Cohen, 2004).

Governments attempt to reassert monetary sovereignty and

counter citizens' loss of confidence in the national

currency (Cohen, 2004), as was the case recently in Zimbabwe

and Ghana, where three and four zeros were removed from the

old Zimbabwean dollar and cedi, respectively. This is

because a loss of confidence by citizens of a country in

their national currency may necessitate the use of foreign

currencies, particularly those adjudged to have higher

prestige. If citizens are confident that the new local

currency will hold its value, they may be willing to shift

from using foreign currencies, such as Euros and dollars, to

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using the new domestic currency. While the act of dividing a

currency’s value by a particular factor is somewhat

symbolic, it can also help to convince citizens of a

currency’s worth. As a result, redenomination often occurs

after economic crises, as governments attempt to convince

citizens and markets that hyperinflation is a thing of the

past. In some cases, the timing is correct, in that

redenomination caps off high levels of inflation. This in

the case of Israel where after rebasing process in 1985

annual inflation rate in 1990 crashed from 386.4 per cent to

17.6 per cent in 2004 and by 2005, the inflation was 2.39

per cent (IMF, 2005).

2.4 Bank of Zambia(Boz)’s Stated Benefits Of Rebasing Of

Kwacha:

The BOZ press realease,as viewed from BOZ technical guidline

of 2012, on the benefits of rebasing of kwacha were as

follows:

simplification of accounting records and the ease

of expressing monetary values.

re-introduction of the culture of using coins

which will reduce pressure on bank notes

significant reduction in transaction costs

reduction in the cost of carrying large volumes

of bank notes as it’s associated risks.

efficiency in payment systems such as the use

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of ATMs

facilitating the introduction of the use of

vendor machines and car parking meters

2.5 Conditions for a Sustainable Rebasing Exercise

Significant efficiency gains of rebasing are experienced

when the process is done in the context of strong economic

fundamentals and macroeconomic stability,such as low

inflation levels and stable currency. Layna (2006),

explained that most countries resort to redenomination after

they have addressed the monetary policy problems that have

generated the large local currency to dollar(or other

prestigious currency) ratios.’Besides, BoZ head of public

relations Kanguya Mayondi stated that, “During the recent

years, inflation has declined to single digit levels such

that in December 2011 it stood at 7.2 per cent. This low

level of inflation coupled with favourable macroeconomic

conditions provides for an opportune time to rebase the

Zambian currency."(Post, 2012).

Further,reports show that the last rebasing exercise in 2007

of the Ghanaian currency,cedi was carried out when

macroeconomic stability began to take root with falling

inflation and interest rates increasing at a decreasing rate

(Bank of Ghana, 2007).

2.6 Brief History of Currency Reforms in Zambia

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Since independence in 1964, the Zambian government has taken

several currency reforms. It must be known that the 2012

currency reform was not the first of its kind in Zambia.

In order to indigenise the monetary system, the Currency Act

of 1967 was enacted. On 16 January 1968, the pound was

replaced by the kwacha with the new official rate equal to

one half the old unit, or US$1.The 5-pound note became 10

kwacha, the 1-pound note 2 kwacha, the 10-shilling note 1

kwacha, and a new 50-ngwee note was introduced to correspond

to the old 5 shillings. Following the de facto devaluation

of the U.S. Dollar on 1971, the Kwacha, through its link to

the Pound Sterling fixed at K1.7094= £1.00, began to

appreciate vis-a-vis the American unit, beginning August

23rd of the same year. On December 3rd, Zambia broke her

currency's ties to the British unit and attached the Kwacha

to the U.S. Dollar, thereby reestablishing the Official Rate

of US$ 1.40, a de facto devaluation.It will be interesting

to note that this was the first currency reform of Zambian.

Before 1991, all Zambian banknotes featured a portrait of

President Kenneth Kaunda on the obverse. After 1992, all

notes have instead featured a fish eagle on the obverse and

all the reverses featured the Chain breaker statue. This

currency reform depicted the second form of currency reform.

In 2003, Zambia became the first African country to issue

polymer banknotes.

Page | 22

Again, after the Patriotic Front government took over power

in 2011, it instituted another currency reform in order to

deal with this currency imbalance and send a signal that the

once high inflation in the Zambian economy is something of

the past. The Bank of Zambia (BOZ), the Zambia’s central

Bank facilitated this exercise, which is called rebasing. On

22 August 2012, the Bank of Zambia issued a press release

stating that the changeover date for the rebased currency

had been set as 1 January 2013.

The new ISO code was ZMW. On January 1, 2013 the new Zambian

Kwacha was introduced at a rate of 1000 old kwacha = one new

kwacha (PostNewspaper, 2012).

This is the third reform in currency market performed by the

Zambian government.

2.7 Brief History of The Banking Sector in Zambia

The brief History of Banking sector in Zambia is partly

extracted from Martin Brownbridge’s article, Financial Policies

and Banking system in Zambia published in 1996.

For over 20 years until the early 1990’s Zambia pursued

predominantly command economic policies that entailed

extensive government ownership and administrative controls

over markets, including financial and banking markets. The

Post-independence financial policies consisted of three main

strands: nationalization of foreign financial institutions,

Page | 23

establishment of government owned banks and development

finance institutions, and administrative controls over

interest rates.

2.7.1 Nationalization of Foreign Financial Institutions

The Banking system in the mid 1960s was dominated by foreign

commercial banks mainly serving the credit needs of foreign

and expatriate businesses while excluding any locals. To

curb that, in 1969 government established Zambia National

Bank (ZANACO) whose main major aims included the provision

of credit to Zambians and the extension of bank branches

into the rural areas. Later, the government realised that

ZANACO would be unable to expand rapidly enough to meet the

expectations placed on it, and in 1971 announced plans to

nationalize all the foreign financial institutions,

including commercial banks (Harvey, 1991:262).The objective

of nationalization was to control the major components of

the economy and to prevent capital flight. Most of the non-

bank financial institutions were nationalized and

amalgamated to form financial parastatals such as the State

Insurance Corporation and Zambia National Building Society.

However, with one exception (the Nederland Bank) the banks

were not nationalized because the foreign banks threatened

to withdraw their expatriate management and the Zambian

government was not confident that it could manage the banks

without them (Harvey, 1993:7). Several other banks financial

institutions were set up by the government to serve various

Page | 24

purposes. The Indo-Zambia Bank was established in 1984 as a

joint venture between the government and three state owned

Indian banks, and in 1987 the Zambia Export and Import Bank

was founded to supply trade finance. Development finance

institutions were set up to provide concessional and/or

long term finance to priority sectors with funds mobilized

from the government or external sources. These included the

Zambia Agricultural Development Bank and Agricultural

Finance Company, which were amalgamated to form the Lima

Bank in 1987, and the Development Bank of Zambia (DBZ). In

order to encourage banking in rural areas, the BOZ imposed a

requirement on the commercial banks that, after their first

four branches had been set up, they should set up a rural

branch for each new urban branch established

2.7.2 Bank of Zambia’s Control of Lending Rates

Beginning in the mid 1960s, the deposit and lending rates of

the commercial banks were controlled by the BOZ, which

maintained a policy of low interest rates in order to

minimise borrowing costs. Until 1984 commercial bank

deposit rates were held within a range of 3.5 per cent and

8.5 per cent and lending rates between 7 per cent and 13

percent (Musokotwane:33 and 55). Nominal rates were

generally held below the rate of inflation, which averaged

10 per cent during the 1970s and 20 per cent during 1980-84.

Page | 25

There was an increase in both inflation and nominal interest

rates from the mid 1980s onwards. The implementation of a

stabilization programme led to a small rise in administered

interest rates in 1984 and the decontrol of interest rates

and introduction of a Treasury bill auction in September of

the following year. Lending rates rose sharply thereafter to

around 30 per cent in 1986 - although because this was

accompanied by an acceleration of inflation real interest

rates remained negative. Interest rate controls were

reimposed in May 1987 following the breakdown of an IMF

supported adjustment programme, and held below 20 per cent

for the remainder of the decade. The government adopted a

new IMF supported adjustment programme in 1989 under which

interest rates were again raised, although they remained far

below prevailing inflation rates, which had by this time

reached levels in excess of 100 per cent per annum. During

the 1990s interest rates were again raised and then

liberalized (Mulaisho, 1994).

2.7.3 Incorporation of Foreign Banks to Zambian Financial Market

During the colonial period three major foreign banks,

Barclays, Standard and ANZ Grindlays, established operations

in Zambia, and dominated the banking system at independence.

The government had planned in 1971 to nationalize the

foreign banks by purchasing 51 percent share holdings, but

this plan was not implemented. The foreign banks were

Page | 26

required to be incorporated in Zambia, and thus formed

boards of directors, which included Zambians, but senior

management remained in expatriate hands. Barclays and

Standard have retained substantial shares of the banking

market (approximately 20 per cent and 16 per cent

respectively of total bank deposits in 1991) but their

market share has been reduced by the growth of ZANACO,

Meridien and other local banks. Both have nation-wide

retail branch networks, although Standard, in line with its

global policy, is now retrenching in Zambia to concentrate

on corporate and trade finance, and announced the sale of

some of its branches to Finance Bank (a bank owned by local

private sector investors, in 1995.Grindlays was purchased by

Stanbic in 1992: it has a much lower market share and

focuses on the corporate sector. During the early 1980s two

more foreign banks established subsidiaries in Zambia:

Citibank, which has concentrated on corporate finance and

Bank of Credit and Commerce International (BCCI). The

latter - known as Bank of Credit and Commerce Zambia (BCCZ)

- expanded rapidly by offering innovative services and

attracting business from parastatals to capture 7.5 per cent

of total bank deposits by 1989. It was purchased by Union

Bank (another local private sector bank) in 1991 after its

parent company was closed down. The BOZ accommodated its

liquidity needs for several months, but in early 1991,

Capital Bank suffered another liquidity crisis when some of

Page | 27

its parastatal deposits were withdrawn and government

allegations that it had lent money to its own directors, who

were leading opposition politicians, contributed to a run on

the bank. It received further liquidity support from the

BOZ but was closed down in May 1991 after a BOZ inspection,

instigated, according to Capital Bank, by the government to

discredit the opposition. That some of its creditors were

not fully reimbursed when a settlement of the bank’s debts

was eventually reached indicates that it was insolvent.

After the 1991 elections, Capital Bank was recapitalised,

with additional shareholders and new management brought in,

and it reopened in 1992 as New Capital Bank. It has since

implemented a debt recovery strategy and managed its assets

very conservatively. Meridien BIAO Zambia (MBZ) - the

Zambian subsidiary of Meridien BIAO - was closed in April

1995 following the closure of Meridien subsidiaries in

Swaziland and Kenya. The reasons for MBZ’s collapse have not

yet been made public, but it seems likely that they were

connected with problems afflicting the parent company,

Meridien BIAO, which was clearly undercapitalised, faced an

acute liquidity shortage and had probably expanded far too

rapidly. It was reported that funds had been transferred

from the subsidiaries in Africa to Meridien BIAO’s own

parent company (Meridien International Bank Ltd.) in the

Bahamas. Other financial irregularities, including insider

lending and doctoring of financial data, were discovered by

Page | 28

a BOZ inspection of MBZ in February 1995 (Bull and Simpson

1995:17).Two more local banks, African Commercial Bank (ACB)

and Commerce Bank were closed in late 1995. The former was

reported to be suffering from acute liquidity problems while

the latter had failed to comply with a request from the BOZ

to replace its Chairman, who was also a director of the ACB

(African Business 1995: 25-26).

After financial liberalisation in the 90’s,the Government

embarked on the Financial Sector Development Programme, a

comprehensive strategy aimed at building and strengthening

financial sector infrastructure to enable it support

economic diversification and sustainable growth (GRZ, 2004).

The implementation of the FSDP has helped address key

bottlenecks in the financial system, including improving the

governance of the banking sector, after crisis of the mid-

1990s.It was meant to increase the number of banks in the

economy of this country.

As a result of this financial measures and economic

liberalisation, by 2006 there were 13 commercial banks. Out

of these, seven were subsidiaries of foreign banks; one

joint venture with majority foreign ownership, four domestic

private banks and a public sector bank.ZANACO a public

sector and the second largest bank by asset size, was

privatised in 2007 although by regulatory definition, it is

still majority owned by Zambians with 54.41% domestic

interest. This case provides a unique feature of ownership,

Page | 29

encompassing foreign financial equity stake, domestic

private sector participation and public sector interest.

Nonetheless, management rights reside with Rabobank, the

single largest foreign shareholder. From 2008, 6 more

subsidiaries of foreign banks have been registered, bringing

the total number of banks with foreign ownership to 14 and

19 banks for the whole industry. The number of domestic

private banks has remained unchanged

The increase in the number of banks has been accompanied by

growth in nominal assets, accounting for more than 90% of

total financial industry assets, which is ten times higher

than other market participants. At the end of 2011, the

banks’ nominal asset size stood at K27.8 trillion (30% of

GDP) which was about three times higher than the K10.7

trillion held in 2006 (27.7% of GDP). Traditional

intermediation activities (loans and advances) account for

the largest share of banks’ assets.

Between 2006 and 2011, the share of loans in total assets

increased to 43% from 36%, reflecting increased lending to

the private sector on consolidation of macroeconomic gains.

Over the same period, the share of liquid assets (cash and

Treasury securities) fell to 35% from 42%, mainly due to

divesture from Government securities as yield rates became

less attractive. Historically, the low level of financial

intermediation has been attributed to banks’ purchase of

Page | 30

Treasury securities, which offer risk-adjusted positive

premiums relative to the more risky bank loans. The banks’

share of foreign assets has also declined in recent years,

averaging about 16% between 2006 and 2011 against 28% from

1998 to 2002.

However, the Zambian banking system continues to

exhibit a high level of concentration with few large

banks dominating the financial landscape.

2.7.4 Current Ownership Structure of Banks in

Zambia

(Source: Bank of Zambia Website-2013 Update)

Name of Bank Type of Ownership

1. AB Bank Zambia Limited Foreign Financial Institution

2. Access Bank Zambia Limited Subsidiary of foreign bank

3. BancABC Zambia Limited Subsidiary of foreign bank

4. Bank of China (Zambia) Limited Subsidiary of foreign bank

5. Barclays Bank Zambia Plc. Subsidiary of foreign bank

6. Cavmont Bank Domestic Bank

Page | 31

7. Citibank Zambia Limited Subsidiary of foreign bank

8. Ecobank Zambia Limited Subsidiary of foreign bank

9. Finance Bank Zambia Limited Domestic Bank

10.First Alliance Bank Zambia Limited Domestic bank

11. First National Bank of Zambia Limited Subsidiary of foreign bank

12. Indo-Zambia Bank Limited Joint Venture

13. Intermarket Bank Subsidiary of foreign bank

14. International Commercial Bank Subsidiary of foreign bank

15. Investrust Bank Plc. Domestic Bank

16. Stanbic Bank Zambia Limited Subsidiary of foreign bank

17. Standard Chartered Bank Zambia Plc. Subsidiary of foreign bank

18. United Bank for Africa Zambia Limited Subsidiary of foreign bank

19. Zambia National Commercial Bank Plc. Domestic Bank- Mixed ownership

Currently, Commercial banks in Zambia have continued to show

resilience, largely due to the strong capital position. APage | 32

majority of banks hold capital balances above the regulatory

threshold, depicting the strength and stability of the

Zambian banking sector. To boost the banks’ capital position

and strengthen their resilience, the authorities raised

regulatory capital further and introduced a tiered structure

in April 2012 (GRZ, 2012). The minimum capital requirement

for local banks was raised to K104 million (US$20 million)

while the requirement for foreign banks was pegged at K520

million (US$100 million). Prior to this revision, the

minimum regulatory capital was uniform across all banks at

K12 million (about US$2 million). The authorities argue that

the new capital requirement is expected to boost banks’

lending to the private sector.

2.8 Currency rebasing experiences in some selected countries

Different countries have had different experiences in the

redenomination of their currencies. Globally, a lot of

countries have redenominated their currencies in different

ways, but few of them will be outlined.

2.8.1 Germany

Rebasing of currencies by elimination of zeroes first

occurred in Germany after World War II. The country was

experiencing persistent hyperinflation in the economic

pressure which saw her currency becoming worthless. It could

not be used to purchase any commodity; as such some citizens

resorted into barter system. Therefore, Central Bank of

Germany was forced to remove zeros from the Deutschmark

Page | 33

(DM).But despite rebasing of DM, the currency never

recovered, in fact it became worse.

2.8.2 Turkey

In January 2005, Turkey rebased its currency, the lira, with

the new Turkish Lira with a conversion rate of one million

of old lira to one new lira. According to New York

representative of Central Bank of Turkish Republic Özçay

(2006), deleting zeros from the Turkish Lira has eliminated

the technical as well as operational problems that rise from

the use of figures with multiple zeros. Therefore, monetary

expressions have been simplified hence it becomes easier to

take records and make transactions. In sum, the changeover

to New Turkish Lira was necessary both for the prospective

positive effects on the currency’s reputation and for

technical reasons. The Central Bank Governor argued that

eliminating six zeros from the Turkish Lira contributed not

only the prestige of the currency in Turkish Citizens’ eyes

but also on the international level as well. By doing this

operation, the trust of people in the currency had been

renewed; and this trust created substantial investment that

is increased in financial instruments and issued in New

Turkish Lira.

2.8.3 Ghana

The Ghanaian cedi was initially introduced in 1965 to

replace the British Pound and was then pegged at 2.4 cedis

Page | 34

to one pound. This first cedi was replaced in 1967 with a

second cedi which was worth 1.2 of the old cedi which

allowed for decimal conversion with the pound at the rate of

one pound equal to 2 new cedis. The value of the second cedi

introduced in 1967 continued to degenerate amid high rate of

inflation in the domestic economy, especially when measured

gains major international currencies; to the extent that the

exchange rate was between 9,050 and 9,600 cedis to one US

dollar between 2006 and July 2007(Onochie 2007).Ghana’s

currency(Cedi) was devalued several times consequent upon

the implementation of International Monetary Fund Structural

Adjustment Programs initiative in 2001 because of debt-

relief collaboration between the IMF and the World Bank

(Bargawi, 2004). The currency redenomination exercise in

Ghana as part of the country's monetary policy, wiped four

zeroes off the national currency in 2007. The old currency

(Cedi) had been rendered almost worthless by years of

inflation that hit double digits a year for almost three

decades (Mansah,2007). Bawumia, (2010) reported that the

combined monetary and fiscal policies have led to reduction

in inflation rates.

2.8.4 Zimbabwe

The Zimbabwean Dollar became completely worthless as a

result of serious economic reversals. Therefore; the Central

Bank of Zimbabwe (2006) had to recall currency notes in

exchange for new notes with three zeros slashed from thePage | 35

dollar. In 2008, ten zeros were removed (The Z$10 billion

was redenominated to be Z$1). The third redenomination

dropped 12 more zeros from the currency in 2009 (Hanke,

2008). The Zimbabwean experience produces hyperinflation

rate of about 12,875% per year. To resciscitate the economy,

the "dollarization" process, in which US Dollar and South

African Rand, was legalized in late January 2009, although

the Zimbabwe paper money remnant circulated alongside

foreign currencies with very little value (Ibid). The

resulting lack of confidence in the currency is in the same

league as several countries including Panama, Ecuador, and

El Salvador, which currently use the United States dollar as

their official currency.

2.8.5 Venezuela

In Venezuela, the policy of currency redenomination and

restructuring was adopted to facilitate the reduction in the

quantities of money, simplify the arithmetic calculations of

amounts expressed in national currency, and facilitate the

transactions made with coins and bills to achieve a more

efficient use of calculation and accounting record systems.

These policies left behind severe consequences of inflation

on the currency. Inflation rates accelerated and the local

currency depreciated.

2.8.6 Netherlands

Netherlands’ currency management crisis was partly

responsible for what is known in economic literature as

Page | 36

'Dutch Disease'. Corden (1984) blames the sluggish

performance of the Dutch economy in the 1970’s on the rise

of the importance of the public sector, which followed the

gas discovery, resulting in a crowding out of investment by

the private sector. The government was forced to print large

bills in response to the needs of the public exchanges when

inflation crossed the border 100 per cent. The short-term

monetary supply contraction was achieved by removing four

zeros from its banknotes (Mehdi, & Reza, 2012). The prudent

monetary and fiscal policies deployed by the government

accounted for the macroeconomic stability of the nation

thereafter.

2.8.7 Ukraine

Ukraine also faced similar problem during her economic

transition. Landy (1997) submitted that in the early days of

the transition, the centrally planned economy was bedeviled

by an authoritarian and paternalistic political

superstructures. The Communist governments acted with

impunity in every sphere. In the financial sphere, the

communist government could confiscate household and

enterprise deposits with banks and other financial

institutions with impunity. In an attempt to fight

inflation, government embarked on confiscatory currency

redenomination, and limits were put on amount and timing of

the money exchange. The consequence of this was a decline in

Page | 37

financial intermediation, which later manifested in the

country's unstable macroeconomic environment.

2.8.8 Russia

Russia’s policy of monetary restructuring and redenomination

in 1998 gave her citizens just a few days to trade in their

Soviet-era Roubles. The resulting panic led to further

damage in the peoples' confidence in the Rouble. Compounded

partly by the government’s inability to service its huge

debt obligations, it had to devalue its currency six months

later with inflation rate growing up to 85.7 per cent in

1999 from 14.6 per cent the previous year (Ioana, 2005).

2.8.9 Argentina

Argentina in 2002 also adopted currency restructuring policy

and redenomination by giving the depositors the option to

withdraw their deposits from banks in US Dollar. The

consequence of this policy allowed widespread circulation of

US dollar in the Argentine economy, which then facilitated

the flight of US dollars to foreign countries. Comparing

Mexico’s policy of devaluation to that of Argentina’s

without debt redenomination between 1994 and 1995. Calomiris

(2007) found that devaluation benefited tradable firms,

while the dollar debt redenomination in Argentina benefited

high-dollar debtors. The findings also show that the

investment behavior in Argentina contrasts with the

experience of Mexican firms in the aftermath of Mexico’s

large devaluation, in which non-tradable producers with high

Page | 38

dollar debt displayed significant relative reductions in

investment.

2.8.10 Nicaragua

Nicaragua, as reported by Mosley (2005), suffered

hyperinflation of 4,770 per cent in 1989 which escalated to

7,485 per cent in 1990 despite the redenomination of its

currency in 1988 as a result of civil war in the country.

The macroeconomic indicators are poor.

2.8.11 Taiwan

As for Taiwan, Li (2005) conducted an investigation on

Taiwan’s role in the currency conversion during the post-war

of 1946 to 1950 and the results show that the policy

produced severe hyperinflation that the government nearly

exhausted the country's reserves to cover much of its

deficit. The inflation arose from suppressed pent-up demand,

due to rationing and price control during the war. In

addition, Shangai’s retail price index moved from 130 to

1819 between 1945 and 1948 respectively. In the end,

government had to introduce the Gold standard in order to

engender public confidence in the currency, which had

plummeted, resulting in social unrest.

2.8.12 Romania

Romania had earlier redenominated in 2003 when the Leu

exchanged for 33,200 to dollar. The country had to again

revalue its legal tender, the Leu on July 1, 2005 to a new

Romanian Leu, the RON. The fixed conversion rate between the

Page | 39

old Leu was 10,000 to RON 1, while one new RON is divided

into 100 subunits named bani. The country allowed July 1,

2005 June 30,2006 for double posting of prices, both in old

and new Leu. The redenomination of the Leu was designed to

simplify domestic monetary transfers and calculations, and

was seen to be a necessary transition phase in preparation

for Romanian’s integration into the European Union as well

as the country’s eventual adoption of the euro as its

domestic currency (Leroyand Mindru, 2005).

2.8.13 Vietnam

In 1985, Vietnam adopted the monetary policy of currency

restructuring called, the General Adjustment of Price on

Wage and Money. The policy adversely affected monetary

system, such that it brought about paucity of cash and funds

for ordinary operation of public firms. The policy could not

curtail the runaway inflation between 1986 and 1987(Layner,

2006). However, by late 1980, the government had

complimented the stabilization programme with a combination

of various supply-side policies to offset the adverse

effects of the use of these instruments. In addition, the

government also engaged in prudent fiscal and monetary

policies to ease the pressure occasioned by the policy.

2.8.14 Indonesia

The Indonesia’s experience of currency restructuring in 2010

produced positive impact on the monetary sector and the

domestic currency. Noland’s (2010) paper on Indonesia’s

Page | 40

experience shows that the policy was confiscatory in content

and was made to punish those who were opposed to communist

regime. The confiscation of “excess” cash was meant to

reduce the money supply in order to control inflation; to

focus on groups engaged in market activities that generate

cash earnings, and also require cash balances. The mechanism

was instituted to redistribute assets in the society so as

to favour asset allocations to groups who were closely

connected to the party and punish enemies of the ruling

party. To correct the monetary disequilibrium arising from

the policy, the programme was abandoned in 2005 and reverted

to more direct monetary controls in an effort to revive the

socialist sector by limiting the sphere of private activity,

and control inflation (Haggard & Noland, 2009; Park, 2009).

2.8.15 Europe Monetary Union.

The Europe Monetary Union (EMU) redenomination policy was to

provide a platform upon which the participating countries

convert their currencies into new values in order to be in

exchange parity with other currencies (Somoye, 2003).

Angeloni, Aucremanne, & Ciccarelli (2006) investigated the

impact at whether EMU has altered the behavior of price

setters and/or the dynamics of inflation. The study finds no

evidence of such change in inflation rate in 1999, when the

euro was introduced as an electronic unit of account.

Although the average magnitude of price changes fell when

Page | 41

the paper currency came into play, both variables 'quickly

settled back to the earlier patterns' and there was no

evidence of a permanent decline in the persistence of

inflation after the mid-1990s. The policy provides stable

macroeconomic indicators.However, presently redenomination

in the European Community seemed to be attracting blame for

the severe debt and economic crisis which has hit badly all

countries that rebased their currencies to Euro.

2.8.16 Israel

Israel is a good example of the countries that backed up the

rebased of her currency in 1985 by removing 3 zeros with a

stringent economic stabilization program. The currency

reform was made in just a short while after the

stabilization programme was launched and the programme

yielded positive results. According to IMF Israel’s Annual

inflation rate in 1990 crash from 386.4 per cent to 17.6 per

cent in 2004 and by 2005, the inflation was 2.39 per cent

(IMF, 2005).

2.9 Explanation Of The Main Bank Variables Under

ConsiderationThe key concepts and variables of bank whose impact by the

rebasing is the subject of this reasearch would be defined

and explained to facilitate the study. The following are

Page | 42

explanations of the key variables from a banking point of

view.

2.9.1 Transaction Cost

Transaction costs include any direct costs, as well as any

concomitant inefficiency in production or misallocation that

resulted from them.The cost structure of businesses is made

up of overhead costs and variable cost. The overheads costs

or sunk cost are those that do not vary with the output

level or service and the variable cost on the other hand are

those that varies with the output level of the firm.In the

financial sector, examples of fixed cost to banks include

the huge cost of IT insfractructure and their installation,

vehicles, computers, premises, vaults, safes, teller cages

and desks. The variable cost on the other hand include

stationary, telephone and utility bills.The cost of the

redenomination to the central bank is ’few real cost beyond

the short run expense of printing new notes and advertising

the change to citizens and financial markets’ (Layna,

2006).This short run nature of the rebasing cost to the

central bank seems to be the same to the commercial banks.

systems. Some of the areas where cost is expected to reduce

include transaction cost. The expected efficiency gains and

cost savings of the redenomination to banks may outweigh the

initial costs making banks operationally more profitable

over time. This is one of the hypothesis that this research

work will investigate.

Page | 43

2.9.2 Efficient Payment Systems

A payment system is a set of instruments, procedures and

rules for the transfer of funds among participants (credit

or financial institutions) in the system, relying on an

agreement between the participants in the system and the

system operator. The funds transfer is performed via an

agreed upon technical infrastructure (CPSS report, January

2001). The payment system is an operational network that

links bank accounts and provides the functionality for

monetary exchange using bank deposits (Biago B. and Massimo

C.2001).It is the infrastructure established in effect the

transfer of monetary value between parties discharging

mutual obligations.

Therefore, the efficient payment system is a system that

settles payments quickly, safely and at reasonable cost.

This definition applies to both interbank and retail payment

systems. These three elements receive different emphasis

depending on the type of payment involved. In connection

with interbank systems, we place considerable emphasis on

safety, because delays or failure of a payment settlement

may lead to a liquidity shortage or loss in some banks.

Retail payments consist of many transactions of limited size

and retail settlement amounts are normally modest. Normally,

problems in the retail payment system will not pose a threat

to financial stability. Therefore, more emphasis can be

Page | 44

placed on executing retail payments quickly and at

reasonable cost.  The efficient national payment system

reduces the cost of exchanging goods and services, and is

indispensable to the functioning of the interbank, money,

and capital markets. A weak payment system may severely drag

on the stability and developmental capacity of a national

economy; its failures can result in inefficient use of

financial resources, inequitable risk-sharing among agents,

actual losses for participants, and loss of confidence in

the financial system and in the very use of money.

In view of the above, this study will investigate as to

whether rebasing of kwacha has improved the efficiency in

the payment systems of these banks. Have banks in Zambia

become more efficient in payment systems since rebasing

process of the kwacha?

2.9.3 Automated Teller Machine (ATM)

An automated teller machine (ATM),also known as an

automated banking machine (ABM) (Canadian English), cash

machine, cash point, cashline or hole in the wall (British,

South African, Sri Lankan, and Hiberno-English), is an

electronic telecommunications device that enables the

clients of a financial institution to perform financial

transactions without the need for a cashier, human clerk or

bank teller.

Page | 45

On most modern ATMs, the customer is identified by

inserting a plastic ATM card with a magnetic stripe or a

plastic smart card with a chip that contains a unique card

number and some security information such as an expiration

date. Authentication is provided by the customer entering a

personal identification number (PIN).

Using an ATM, customers can access their bank accounts in

order to make cash withdrawals, debit card cash advances,

and check their account balances as well as purchase pre-

paid mobile phone credit. If the currency being withdrawn

from the ATM is different from that which the bank account

is denominated in (e.g.; Withdrawing Japanese Yen from a

bank account containing US Dollars), the money will be

converted at an official wholesale rate. Nevertheless, this

will only occur if the card being used is internationally

calibrated and recognized like VISA ATM cards. Thus, ATMs

often provide one of the best possible official exchange

rates for foreign travellers, and are widely used for this

purpose.

In Zambia ATMs arrived on the scene in 2000 and was first

installed by the ZANACO(advisor.com). ATMs in Zambia allow

for withdrawal of cash, checking of account balance and and

some can be used to purchase mobile prepaid units. This

means that the redenomination may affect the operations of

ATMs when it comes to cash dispencing. Before the

Page | 46

redenomination, when the old Kwacha was the legal tender,

ATMs in Zambia dispense cash in denominations of K5,000,

K10,000,K20,000,K50,000.However,Bank of Zambia argued that

the rebasing process allowed it to introduce the high

Kwacha note of K100 which has reduced the amount of notes

to be issued per withdrawal.For example if a client before

the redenomination is withdrawing K500,000 worth of the old

kwacha in an ATM that is dispencing only K10,000

denominomination, then the machine will dispense fifty

pieces of the 10,000 old kwacha denomination. This could

only be done with two transactions since the machine can

dispense only a maximum of 40 pieces of notes per

transaction. However, after the redenomination, a clients

can withdraw the same worth of cash(ie K50) by withdrawing

5 pieces of bank notes from an ATM dispensing only K10

denomination. This can be done in just one single

transaction. In the first instance the machine chuns out

fifty pieces of notes but with the redenomination it is

only five pieces. Thus the ATM does less work,uses less

power and may results in fewer breakdowns.

How the redenomination of kwacha has impacted on the

reliability of ATMs overall performance will be analysed by

this study.

2.9.4 Reliability and Convenience of Banking

Services

Page | 47

Convenience is anything or situation that saves resources

(such as time or energy) or frustration. Service

convenience is one of the important promises financial

institutions make to their customers. Customers would like

to transact business with banks which makes their services

more convenient through the use of technology or the

accessibility of their branch and ATM locations for

example.Could have redenomination made it more convenient

for clients to do cash deposits and withdrawals, funds

transfers among other transactions? These questions will be

investigated by this research paper.

2.9.5 Accounting Records

Accounting records are all sources of information and

evidence that are used in preparing, verifying and or

auditing financial statements. Accounting records also

includes documentation to prove ownership of assets

creation of liabilities and evidence of monetary and non-

monetary transactions. All of the documentation and books

involved in the preparation of financial statements or

records relevant to audits and financial reviews.

Accounting records include records of assets and

liabilities, monetary transactions, ledgers, journals, and

any supporting documents such as checks and invoices.

Accounting records can take on many forms and include;

Ledgers, Journals, Bank statements, Contracts and

agreements, Verification statements, Transportation

Page | 48

receipts, Invoices, Vouchers, etc.Accounting records can be

in physical or electronic formats.

Therefore, the hypothesis on this Bank of claim that

rebasing of kwacha will simplify the accounting records will

be tested as to what extent have the above-mentioned

accounting records been simplified because of rebasing of

kwacha.

2.10 Review Of Similar Studies

a) The Redenomination Of The Ghanaian Currency, The Cedi

(2007); A Study Of Its Impact On The Business Of The

Financial Institutions In Ghana

The Master of Business Administration student of Blenkinge

Institute of Technology (BTH), Rueben Aziz, carried out a

research on rebasing of Cedi entitled, The Redenomination of

the Ghanaian Currency, the Cedi (2007); A study of its

impact on the business of the Financial Institutions in

Ghana. In this thesis, Rueben Aziz (2009) explored the

impact on some variables affecting commercial banking

businesses. These are cost, operational risk, deposit

mobilization, ATM operations, and reliability and

convenience of banking services. According to the

researcher, Rueben Aziz (2009), the study showed the

following results: 1) The redenomination had not affected

costs in banks, 2) The redenomination has generally reduced

operational loss risks, 3) The redenomination has generally

Page | 49

improved deposit mobilization, 4) The redenomination has

improved the reliability and profitability of ATMs, 5) The

redenomination has improved the reliability and convenience

of banking services.

b) Evaluation of the Challenges and Benefits of the New

Ghana Cedi to Urban Market Women in the Accra Metropolitan

Area.

Besides, in June 2011, a Ghanaian student at Kwame Nkrumah

University of Science and Technology, Baba Sayuti, conducted

another similar study entitled, “Evaluation of the

challenges and benefits of the new Ghana cedi to urban

market women in the Accra Metropolitan area. His research

findings revealed that the major benefits of the new Ghana

cedi to market women was the security as a result of the

portability of the new currency compared to the old cedi.

The major challenges identified in the study were difficulty

identifying counterfeit notes, difficulty changing the Ghc50

note when customers bought from the market women and the

difficulty in using the New Gh1 pesewa coin as many

customers refused to accept it as change from the market

women(Baba,2011).

c) Impact Of Redenomination On Economic Indicators

Finally, Two Indonesian university lecturers, Prof. Dr.

Euphrasia Susy Suhendra and Sri Wayhu Handayani of Gunadarma

University, carried out a rebasing related research with a

Page | 50

topic “Impacts of Redenomination on Economics Indicators”.

The purpose of their study was to examine the impacts of

redenomination on inflation, currency exchange, economic

growth and export value on 27 different countries. They

wanted to know which factors influence the government most

to redenominated the currencies. After examining those

factors by regression analysis, the two Lecturers concluded

that the driving factors of redenomination are as follows:

(1) simultaneously, exchange rate, inflation, and form of

government, influence driving factors of redenomination. (2)

Partially, inflation is the most dominant driving factor

towards the redenomination. While the exchange rate as well

as form of government are the driving factors that do not

influence significantly towards redenomination. But the

predictor of a country in doing redenomination is inflation

in the year prior to redenomination period

2.11 Chapter Summary

In the previous Chapter,the research dealt with the overview

of rebasing(redenomination) which brought the definition

and the rationale for rebasing.Further,apart from showing

the experiences of rebasing around the world,it included

the outlining of the Zambian Banking System from 1964 to

date.The chapter ended with review of similar studies and

chapter summary.

Page | 51

CHAPTER 3

THEORETICAL AND CONCEPTUAL

FRAMEWORK

3.0 Introduction

This part of the study will deal with the concepts of

conceptual and theoretical framework. This shows the

system of concepts, assumptions, expectations, beliefs, and

theories that supports and informs your research (Miles &

Huberman, 1994; Robson, 2002). Conceptual framework depicts

a visual or written product, one that “explains, either

graphically or in narrative form, the main things to be

studied, the key factors, concepts, or variables and the

presumed relationships among them. In this section,

conceptual framework will show a representation of the main

components of the study and their interrelationships or

linkages.

Page | 52

3.1 Theoretical Framework

Hussey and Hussey (1997: 123) define theoretical framework

as a collection of theories and models from the literature,

which underpins a positivistic research study. In addition,

Black (1993: 25) states that theories are explanations of

how things function or why events occur.

3.1.1 Quantity Theory of Money (Q.T.M)

The Quantity Theory of Money is one of the best-known

theories of monetary economics. It says that the rate of

inflation is approximately equal to the rate of growth of

money in excess of the growth rate of real output. In this

study, we explore whether the Quantity Theory of Money holds

in the Post Rebasing era of the Zambian economy and in three

standard monetary model economies, both in the short run and

in the long-run.

Whether the Quantity Theory of Money holds in the long-run

is harder to establish, because we must make operative the

meaning of long run”. However, the words “at once” are key

in Hume’s Quotation when central banks conduct monetary

policy such as rebasing of kwacha; changes in the quantity

of money are not introduced evenly and “at once”. Instead,

money is injected into one part of the economy typically the

banking system, and it spreads out gradually from there. A

consequence of this relatively slow spreading out of money

Page | 53

is that the Quantity Theory of Money fails to hold in the

short-run, while the spreading out is taking place.

In the standard neoclassical models, the QTM holds every

period when rebasing occurs, there is likelihood that the

‘new’ cash injected in the economy and the ‘old’ cash still

hanging in the system will raise the money supply while the

velocity of money and real G.D.P remain constant.

Therefore, in a short run the price levels rise marginally,

but the ‘old’ currency is mopped out of the economy the

‘short term’ demand eases as the money supply decreased

hence lowering the price level.

Now that the Bank of Zambia in its monetary policy has

managed to wipe out the ‘old notes’ and remained with ‘new

kwacha’ only, how does the quantity theory of money explain

the changes that would occur in the banking sector? Since in

the standard neoclassical models, the Q.T.M holds in both

the short and long run, how will the new kwacha supply in

Zambia’s Banking sector affect the banks and their business?

Will the Bank’s operations change in a short run because of

new kwacha? Thus, the research will apply this theory to

investigate the extent to which the knocking off the three

Zeroes from a kwacha will bring desirable changes on certain

variables in the banking sector. Within this shortest

possible time (in short run) of rebasing in Zambia, the

research will use QTM to investigate whether the benefits of

Page | 54

rebasing like improvement in the ATM operations, reduction

in the transaction costs, simplification of the payment

systems and efficiency of payment systems have really come

to fruition in the commercial banks who are major key

partners with the Bank of Zambia in monetary policy as

result of new money supply comprising new notes and upgraded

note.

QTM becomes a very suitable theory to be used for this

research as it analyses the effects of increasing the supply

of cash in the system by the bank directly and otherwise.

Besides the theory also analyses the impact of introducing

more and new money in the economy both in a short and long

run. Will the introduction of this new money supply through

rebasing bring any changes in the banking sector?

3.1.2 Money Illusion Theory

The phenomenon of money illusion arises whenever people

misestimate the real value of their nominal wealth. Fisher

(1928:4) defines this illusion as "the failure to perceive

that the dollar, or any other unit of money, expands or

shrinks in value”. Therefore, money illusion refers to

individual or aggregate economic behaviour that consists in

failing to distinguish transactions in terms of either

nominal or real monetary values. Meanwhile, Safir et al.

(1997) simply defined it as the tendency to think in terms

of nominal rather than real monetary value.

Page | 55

During rebasing of a currency, consumers re-evaluate their

money management strategies in order to adapt to a newly

introduced currency especially when the old and new

currencies are used simultaneously, pending a phase-out of

the old currency at a later date. For example, Marques and

Dehaene (2004) posited that 2 major processes can occur when

a country is adapting to a new currency: rescaling

(transforming all prices in the old currency to values in

the new currency at the same time) or re-learning (memorize

the new prices of consumer goods one by one). The first

process would predict an easy adjustment to a new currency,

whereas the second process lends itself to a slower, more

cumbersome process. The Money Illusion theory highlights the

perception of prices in a smaller denomination new currency

lower than when expressed in the former national currency if

it had a higher nominal value (Gamble, Garling, Charlton &

Ranyard, 2002). This suggests that individuals adjusting to

a new currency with a smaller nominal value will initially,

at least, have trouble in understanding the true value of

goods and services. Kane and Klevorick (1967) argued that

the essence of money illusion laid in such misperceptions of

the price level (P, weighted average of individual

commodities' prices), the rate of exchange between nominal

assets (W) and commodities.

The challenging influence of money illusion or its other

derivation has been sourcing for multi- perspective studies,

Page | 56

especially due to the little explanation of the money

illusion, such as studies proposed to account for the

typical reactions by consumers to currency redenomination

including perceived increases in the prices of goods and

services (Brachinger, 2006;Hobijn Ravenna & Tambalotti,

2006; Ranyard, 2007), errors in the monitoring of personal

expenditures (Ranyard, 2007; Routh& Burgoyne, 1989, 1990),

disturbance in consumer evaluation of transaction (Soman et

al., 2002) and some increases in the giving of money at

church (Cannon & Cipriani, 2006). In their examination of

the phenomenon of money illusion, Jonas,Greitemeyer, Frey &

Schulz-Hardt (2002) found that the nominal value of currency

biases its subjective value in a number of ways. People

perceived currency with lower nominal value than the

familiar currency to be of lesser value, thus leading to an

increase in consumer prices so as to be compatible with the

nominal value of prices in the familiar currency.

In prior studies, the numerosity heuristic (see, for

example, Pelham, Sumarta & Myaskovsky, 1994; Showers 1992;

Pelham &Swann, 1989; Wilder 1978, 1977)—the tendency among

animals and humans to over infer quantity from numerosity—

tends to be activated when people’s cognitive resources are

taxed or they are unable to make use of higher order cues

for inferring quantity. Under such circumstances, people

rely disproportionately on numbers as cues for inferring

quantity.

Page | 57

The work of Pelham et al. (1994) reports that if inferring

quantity from numerosity is less cognitively demanding than

the engagement of more systematic reasoning, then it is

possible that numerosity is a “default” strategy people rely

on in making spontaneous judgments in their daily lives.

Soman et al. (2002) clearly explains how a change in the

numerosity of the scale can and does result in changes in

spending behavior and total spending. This change in

numerosity of the scale can occur during different periods

of the economy especially when the currency is being

changed.

Therefore, it is important that any party, such as the

government (political economy decision maker) and businesses

to take note of the direct and indirect aggregated economic

effects of money illusion in the process of rebasing the

currency. For example, Dusansky and Kalman (1974) observed

that in addition to changes in purchasing behaviour,

disturbances in commodity prices can influence consumer

utility.

3.2 Conceptual Framework: Outline and Explanation

Figure 3.1 ,the Zambia government through the Bank of

Zambia, instituted currency reform called Rebasing but

globally known as redenomination of the currency.In

justifying the exercise, Bank of Zambia (2012) argued that

it was worthwhile to rebase the Kwacha since rebasing or

Page | 58

redenomination of the Kwacha is aimed at addressing the

costs associated with the accumulated depreciation of the

Kwacha since 1991, which they contend, had undermined the

basic function of the Kwacha and furthermore created

transaction difficulties. It is argued that since inflation

has been broken and Zambia now qualified, as a moderately

stable economy with high public confidence in the economy,

rebasing of the Kwacha is ripe.

Bank of Zambia (2012), argued that rebasing the Zambia

Kwacha would result in a number of benefits including:

Facilitating easier business transactions because it leads

to the use of smaller units of money. It simplifies

Page | 59

accounting and the ease of expressing monetary

values, thereby minimizing errors associated with the

inputting of financial data and time spent to review such

data. It achieves a more efficient use of calculation and

accounting record systems. Thus, rebasing simplifies

bookkeeping and reduces the drudgery in transactions, record

keeping and banking transactions.

To evaluate the benefits of using rebased kwacha in the

banking sector, the researcher is interested in finding out

the following hypothesis as follows:

Hypothesis 1:

The use of rebased Kwacha has simplified the

accounting Records in the Banking Sector.

Hypothesis 2:

The use of Rebased Kwacha has reduced the transaction

costs in the banks

Hypothesis 3:

The use of Rebased Kwacha has improved the ATM operation

Hypothesis 4:

The use of rebased Kwacha has brought efficiency in the

Payment Systems in the Banks.

Hypothesis 5:

Page | 60

The use of rebased Kwacha has resulted in Reliability and

Convenience in the banking services.

3.3 Chapter Summary

The chapter dealt with the concepts of conceptual and

theoretical framework. It has shown that these two can be

wholesomely defined as the system of concepts, assumptions,

expectations, beliefs, and theories that supports and

informs your research. Whereas conceptual framework

represents a visual or written product, one that “explains,

either graphically or in narrative form, the main things to

be studied ,the key factors, concepts, or variables and the

presumed relationships among them, theoretical framework

outlines some theories or models that are linked and can

explain the given research topic.Therefore,quantity theory

of money and Money illusion theory are the two theories that

have been used to explain the topic under consideration.

CHAPTER FOUR RESEARCH METHODOLOGY

4.0 Introduction

This chapter deals in detail with the various tools and

techniques that were employed in this study, the target

Page | 61

population, sample size and sampling techniques as well as

the various and appropriate sources of data and how the data

were collected. There are many different types of research

methods and the choice for any particular study must depend

on the objective of the research (Burns and Bush, 2000).

4.1. Research Design

This research has been designed to find out if at all, some

of the benefits by the Bank of Zambia in the pre-

redenomination era in 2012 of using rebased kwacha in the

Banking Sector have been realized. This research was done in

two parts. The first part comprised collecting and analyzing

data obtained from various databases and this was done by a

quantitative research design. The second part, which

employed qualitative research design, involved expert

interviews to validate the results.

4.2. Population

Population refers not only to people, but also to firms,

products and so on (Kitchenham and Pfleeger, 2002). It is

the set of elements or people to which findings are to be

generalized. In evaluating the benefits of using rebased

Kwacha in the banking sector, the focus was given to all the

19 commercial Banks in Zambia.

4.3. Sampling Frame:

Page | 62

The population of 19 banks is too low to carry out any

sampling process. Therefore, no sampling frame will be set

for this study as sample size will be equal to population.

4.4 Data Collection Method

The choice of data collection method will depend on an

overall judgement of which type of data is needed for a

particular research method’(Ghaurid and Gronhang,2005).

Generally, data will be sourced from both Primary or

Secondary concaves.

4.4.1 Primary Data

According to Malhotra and Birks (2007:94), primary data is

“data originated by the researcher for the specific purpose

of addressing the research problem”. In this study, primary

data included Semi-structured interviews and questionnaire

to answer the research questions. Primary data can also be

categorized as quantitative and qualitative.

(a) Qualitative Data

Qualitative data “refers to all non-numerical data or data

that have not been quantified and can be a product of all

research strategies” and usually associated with exploratoryPage | 63

research (Saunders et al., 2009, p. 480). The common form of

qualitative data methods are interviews, focus group

discussion and usually employed to help the researcher gain

insight into the subject area (Saunders et al., 2009). To

achieve the objectives of this study, semi-structured

interview was conducted as a qualitative data gathering

method.

(b) Quantitative Data

Quantitative research involves the use of structured

questions where response options are predetermined(Burns and

Bush,2000). Therefore,quantitative data are research data

that can be expressed in numerical form and quantified to

answer research questions. This type of data needs to be

analysed and interpreted to make meaning (Saunders et al.,

2009). Statistical Software such as SPSS for both final

analysis to generate quantitative tools like graphs, tables

etc.

The researcher used questionnaires as the quantitative

method of collecting primary data in this research. Several

questions were developed according to each variable under

consideration, (See Appendix A for detail of the

questionnaire). All the 19 questionnaires were administered

to all the 19 commercial banks in Zambia.

Page | 64

It must be made clear that the uniform 7-variable likert

scale system was used in the questionnaire

4.4.2 Secondary Data

Blumberg et al., (2008) defined secondary data as

information or data already collected by other researchers

or institutions, usually for different purposes. Secondary

data from sources like academic articles, newspapers and

textbooks, used in this research includes currency rebasing

and revaluation in different countries.

4.5 Data Analysis Method

According to Churchill (1979), both qualitative and

quantitative data are usually required in complete

evaluation since they are complementary to each other than

mutually exclusive. For this research, data collected wereanalyzed and presented by the use of statistical models such

as tables. The data was entered in the Statistical Package

for Social Sciences (SPSS) database and descriptive

statistics was used to determine the means for each

hypothesis. However, since population mean is equal to

sample mean, the hypotheses could not be tested, but a

decision rule was made using the likert scale and set it

against the calculated overall mean for each variable.

4.6 Problems Encountered During Data Collection

Page | 65

a) Some of the bank officials were questionnaire averse for

the reasons unknown. In most cases, they had to be

persuaded and convinced to elicit their utmost co-

operation, and hence it is expected that the quality of

some responses may have been compromised

b) There are certain banks which didn’t have any ATM until

recently. Others to date do not have any ATMs; hence,

there was less information on the variable relating to

ATM operations.

4.7 Chapter Summary

The previous chapter dealt in detail with the various tools

and techniques that were employed in this study, the target

population, sample size and sampling techniques as well as

the various and appropriate sources of data and how the

data were collected. The research used both Primary and

secondary data which has further been categorized as

qualitative and quantitative. The researcher concluded with

methods employed in data analysis and the problems

encountered during data collection process in the field.

Page | 66

CHAPTER FIVE

DATA PRESENTATION AND ANALYSIS

5.0 Introduction

The chapter presents the findings of the study from the

analysis of the data that was collected. The data was

Page | 67

collected from all the 19 commercial banks. The data

collection included self-administered questionnaires and

semi-structured interviews.

The researcher’s main objective is to evaluate the benefits

of using the rebased kwacha in the banking sector.

The research is aimed at answering the following questions:

Has the use of rebased Kwacha, Simplified the

accounting records in banks?

Has the use of rebased kwacha reduced the transaction

costs in the banks?

Has the rebasing of kwacha improved the operations of

the ATM?

Has the use of rebased kwacha brought efficiency in

the payment systems in banks?

Has the use of rebased kwacha made banking services

more convinient and reliable? 5.1 Data Presentation

The table below shows the outline of the respondents who

were involved during the research study. The researcher

administered the questionnaires to all the 19 banks in

Zambia. Since the questionnaires comprised two parts, each

part was actually answered by one or more senior Bank

officials with some rebasing experiences. However, the

respondents were free to consult each other, but only within

the bank.

Page | 68

It should be noted that in some cases, the same officials

were used to answer both sections

Table 5.1 Data Presentation Table

5.2 Level of Response

From table 5.1 above, Nineteen (19) commercial banks

Page | 69

Bank Number Number Of Respondents    

 Open Ended Questions

Semi StructuredInterviews Total Comment

B1 1 1 2 ResponsiveB2 2 2 2 ResponsiveB3 1 1 2 ResponsiveB4 1 1 2 ResponsiveB5 1 1 2 ResponsiveB6 1 1 2 Responsive

B7 1 1 2Responsive-No ATM

B8 1 1 2Responsive-No ATM

B9 1 1 2 ResponsiveB9 1 1 2 ResponsiveB10 1 1 2 ResponsiveB11 1 1 2 ResponsiveB12 1 1 2 ResponsiveB13 1 1 2 Responsive

B14 1 1 2Responsive-No ATM

B15 1 1 2 ResponsiveB16 1 1 2 ResponsiveB17 1 1 2 ResponsiveB18 1 1 2 Responsive-No ATM

B19  1 1 2 Non-Responsive

participated in the research. Eighteen(18) managed to

respond representing about 95% response rate.However,of the

eighteen, four banks skipped the questions on “ATM

operations” as they did not have any.Therefore,the analysis

of variable on ATM operations shows only 14 banks with Bank

7,8,13 and 18 removed. Bank 19, which is IndoZambia Bank

Ltd, was non-responsive.

5.3. Descriptive Analysis: Response rate

The researcher tabulated the rate of response of the

respondents (banks) by each question under the variable

being investigated. The rate shows the extent to which the

respondents agreed or disagreed with a particular question. 5.3.1 Simplification of accounting Records

The researcher rounded up five questions and three sub-

questions, which assisted in bringing out how rebased kwacha

affected the bank’s accounting records.

Page | 70

Table 5.2: Accounting Records Response Rate Table

In this variable analysis, the data in table 5.2 was

summarised in the figure 5.1 below. It portrays the

percentage of the choices made by all the respondents in the

variable of accounting record simplification. It shows thatPage | 71

Option Strong

lyAg

ree

Agre

e

Somewh

atAg

ree

Undeci

de

Somewh

atDi

sagr

eeDi

sagr

ee

Strong

ly

Likert Value 7 6 5 4 3 2 1% % % % % % %

1. The redenomination exercise hassimplified your accounting records

50.0

38.9

11.1

0.0

0.0

0.0

0.0

2. How has the use of rebased kwachasimplified your accountingrecords?

Easier data processing 44.4

38.9

11.1

0.0

0.0

0.0

5.6

Easier record keeping 16.7

44.4

16.7

5.6

0.0

16.7

0.0

Easier computations 55.6

33.3

0.0

0.0

11.1

0.0

0.0

3. Rebasing has reduced or eliminatedProblems associated withaccounting and data processingsoftware

5.6

27.8

33.3

5.6

0.0

27.8

0.0

4. The use of rebased Kwacha hasreduced errors associated withinputting of financial data

16.7

22.2

33.3

5.6

5.6

16.7

0.0

5. Rebasing has reduced or eliminateddifficulties associated withmaintaining bookkeeping andstatistical records

16.7

22.2

38.9

5.6

0.0

16.7

0.0

6. Rebasing process has reduced Timespent in reviewing financial dataof this bank

22.2

44.4

16.7

0.0

0.0

16.7

0.0

34% agreed and 28% agreed somewhat with the claim.

Generally, more than half (50%) accepted that rebased kwacha

had simplified the accounting records. From the glance, it

is clear that there was a very little percentage for all the

responses that fell below neutral level of four.

113%

22%

33%

420%

534%

628%

Figure 5.1 Accounting Record Simplification

5.3.2 Transaction costs descriptive analysis of data

Similarly, Table 5.3 below shows that the researcher

generated 10 main questions and 5 sub- questions which

would assist in vividly generate tangible responses to come

up with strong conclusion about the extent to which rebasing

Page | 72

process has benefited the bank in as far as transaction

costs are concerned.

The data in table 5.3 has been summarised in the figure 5.2.

It shows the percentage of the choices made by the all the

respondents in the variable. It shows that that the large

rate of response is skewed towards the disagreement

side.However,the percentage proportion seem to be balanced

between the level of agreement and disagreement, and hence

the researcher couldn’t accept the claim that transaction

costs reduced as a result of rebasing process.

Table 5.3 Transaction Costs Response rate Table

Stro

ngl

y Ag

ree

Agre

e

Some

wha

t Ag

ree

Unde

cid

edSome

wha

tDisa

gre

eStro

ngl

yValue 7 6 5 4 3 2 1

Question % % % % % % %1. The rebasing exercise has led to

the reduction in the transactioncosts

38.9 33.3

27.8

22.2 16.7 11.

1 5.6

2. The rebasing exercise has led tothe reduction in the transactiontime

16.7 33.3

16.7 0.0 0.0 22.

2 11.1

3. The bulkiness of the coins withits additional handling cost hassignificantly reduced theefficiency gains of theredenomination

27.8 16.7

16.7 0.0 5.6 33.

3 0.0

4. The redenomination has reducedthe breakdown in equipment suchas note counting machines,

27.8 5.6

11.1 0.0 16.7 22.

2 16.7

Page | 73

counterfeit detectors; bullionvans etc hence reducing extrareparation costs of thesemachines.

5. The rebasing exercise has reducedthe cost of servicing ormaintenance of certain equipmentsuch as note counting machines,counterfeit detectors etc whichhas resulted in cost savings

16.7 16.7

11.1 0.0 16.7 22.

2 16.7

6. Taking other factors intoaccount, the use of rebasedkwacha in this bank has reducedthe need to employ more staff tohandle certain transactions

16.7 22.2 5.6 0.0 16.7 27.

8 11.1

7. The rebasing of kwacha hasreduced the need for more notecounting machines, counterfeitdetectors, bullion vans, tellercages etc

16.7 22.2

11.1 0.0 11.1 22.

2 16.7

8. In my opinion the overhead costssuch as the cost of recalibrationof equipment, software, IT etc isless compared to the expectedbenefits that will accrue overtime

16.7 11.1

11.1 0.0 5.6 38.

9 16.7

9. According to this bank, how hasthe rebasing exercise led to thereduction in the cash handlingcost and hence transactioncosts :

16.7 16.7

11.1

16.7 11.1 16.

7 11.1

Reduced labour costs 33.3 22.2

11.1 0.0 16.7 22.

2 11.1

Reduced logistical cost 5.6 38.9 5.6 5.6 5.6 33.

3 11.1

Reduced cost on bulliontransportation 16.7 22

.2 5.6 5.6 11.1 27.8 11.1

Reduced unchecked bulk cash 16.7 22.2 5.6 0.0 11.1 27.

8 11.1

Reduced turnaround time 16.7 16.7

16.7 0.0 11.1 22.

2 16.7

10. For this bank, the initial costof the rebasing exercise is lesscompared to the expected benefitsthat will accrue overtime.

22.2 11.1

16.7

16.7 5.6 16.

7 11.1

Page | 74

1 2 3 4 5 6 7051015202530

Figure 5.2: Transaction Costs Figure

Likert Scale Value

Freq

uenc

y %

5.3.3 ATM operations Descriptive Analysis

In the order to evaluate whether the ATM operations improved

due to the use of rebased kwacha, the researcher generated

four questions in which the banks were asked to show the

extent in which they agree or disagree with the Variable

being investigated. Refer to Table 5.5

Table 5.4: ATM Operations Response

Rate Table

Strongly

Agre

e

Agre

e

Somewhat

Agre

e

Undecide

dSomewhat

Disagree

Disagree

Strongly

Disagree

Value 7 6 5 4 3 2 1

 Questions % % % % % % %

1. The use of rebased kwacha hasimproved the operations of your ATMs.

5.6 22.2 5.6 5.6 5.6 11.

1 22.2

2. In this short period of usingrebased kwacha, the cost of 5.6 5.6 11.1 16.

711.1

11.1 16.7

Page | 75

maintaining the ATM machine has reduced significantly

3. The redenomination has reduced pressure on ATMs (such as reduced customer queues) resulting in fewer breakdowns

5.6 0.0 5.6 11.1

11.1

27.8 16.7

4. From my observation, the redenomination has reduced queues in front of the ATMs during salary payment weeks.

5.6 5.6 0.0 5.6 16.7

27.8 16.7

The data in Table 5.4 has been summarised in the figure 5.4

below. It shows the percentage of the choices made by the

all the respondents in the variable. It shows that that the

large rate of response is skewed towards the disagreement

side. The figure clearly shows that collectively 62% are

rejecting the claim that rebasing process had improved ATM

operations while only about 30% accept. This shows that it

is not possible to accept the question, which the researcher

raised.

Page | 76

123%

225%3

14%

413%

57%

611%

77%

Figure 5.3 :ATM Operations

5.3.4 Payment System Descriptive analysis

The researcher generated the table 5.5 that shows the

proportion of the respondents that agreed or disagreed with

the given question. This was achieved by raising 3 questions

and 6 sub-questions in order to investigate whether the use

of rebased kwacha has actually resulted in to payment

systems efficiency.

Table 5.5: Payment Systems Response Rate Table

Page | 77

Option Stro

ngl

y Ag

ree

Agre

e

Some

wha

t Ag

ree

Unde

cid

edSome

wha

tDisa

gre

eStro

ngl

yDisa

gre

Value 7 6 5 4 3 2 1

% % % % % % %

1. The payments system of thisbank has improved as aresult of using rebasedkwacha

22.2 38.9 11.1 16.7 5.6 5.6 0.0

2. How has the use of rebasedKwacha benefited the bankin the area of paymentssystem?

Reduced turnaround time 27.8 38.9 22.2 11.1 0.0 0.0 0.0

Reduced hall traffic 16.7 22.2 33.3 16.7 5.6 5.6 0.0

Increased accuracy 44.4 16.7 22.2 16.7 0.0 0.0 0.0

Reduced clearing time 22.2 16.7 33.3 11.1 11.1 5.6 0.0

Increased ATM usage 22.2 5.6 27.8 38.9 16.7 16.

7 0.0

Convenience and security 38.9 22.2 11.1 11.1 11.1 5.6 0.0

3. The reintroduction of coinsduring the rebasing periodhas improved the efficiencyin the payment systems ofthis bank.

0.0 16.7 11.1 11.1 22.2 38.

9 0.0

The data in Table 5.5 has been summarised in figure 5.5

below. It shows the percentage of the choices made by the

all the respondents in the variable. It shows that that the

large rate of response is skewed towards the agreement side.

The figure clearly shows that collectively 50% are accepting

the claim that rebasing process had brought efficiency in

Page | 78

payment systems while only about 30% rejected. This shows

that it is possible to accept the question, which the

researcher raised.

1 2 3 4 5 60.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Figure 5.4: Payment System

Likert Value

freq

uenc

y

5.3.5 Reliability and Convenience Descriptive analysis

In order to come up with a strong conclusion about the

impact of rebasing of kwacha on the reliability and

convenience on banking services, the researcher managed to

come up with four questions under this variable. Respondents

were asked to show the extent in which they agree or

disagree with the particular question. Therefore, this is

Page | 79

shown by the response rate tabulated as percentages in Table

5.6.

Further, using the data in Table 5.5 the researcher

summarised it and presented in the figure 5.6 below. It

shows the percentage of the choices made by the all the

respondents in the variable. The response rate is skewed

towards the agreement side with a collective 50%, accepting

the claim that rebasing process had made banking services

more reliable and convenient while only about 30% rejected.

This shows that it is possible to accept the question, which

the researcher raised.

Table 5.6: Reliability and Convenience of Banking Services

Response Rate

Reliability And Convenience OfBanking Services

Stro

ngl

y Ag

ree

Agree

Some

wha

t Ag

ree

Unde

cid

edSome

wha

tDisa

gre

eStro

ngl

y

Value 7 6 5 4 3 2 1

Question % % % % % % %1. The redenomination has

reduced the time it takesto serve a client per average cash based transaction

33.3

44.4

11.1 0.0 11.

1 0.0 0.0

2. The redenomination in general has improved convenience of banking

5.6 44.4

33.3

11.1 5.6 0.0 0.0

Page | 80

services3. From my observation

customers are more comfortable carrying certain amount of cash toand from the banking hallas a result of the redenomination compared to pre redenomination time

22.2

50.0 5.6 11.

111.1 0.0 0.0

4. From my observation significant numbers of formerly un-banked have opened accounts due to, for example convenience of banking since the redenomination

0.0 16.7

11.1

11.1

38.9

22.2 0.0

16%

217%

38%4

15%539%

615%

Figure 5.5 Reliability and Convinience Frequency

5.4 Quantitative Analysis

Page | 81

In this analysis, the researcher used the likert scale

system to come up with a decision.

Table 5.7: Likert Scale Values

Option Strongl

y Agree

Agree Agree

Somewha

t

Undecid

ed

Disagre

e

Somewha

t

Disagre

e

Strongl

y

Disagre

e

Value 7 6 5 4 3 2 1

Decision Rule:

In reference to the Likert Scale, the research analysis

applied the following research decision-making process.

When; µ 5:≤ Reject the hypothesis

When: µ > 5: Accept the Hypothesis.

The researcher used point 5 on the likert scale instead of

point 4 for reference, because it is only above 5 that a

responder is completely confident about the answer. Anything

between 4 and 5 carries a weak and insufficient agreement to

be used for conclusion. This research is meant to produce

strong and not doubtful conclusions, which might be used for

economic adjustments by any policy makers.

5.5 Quantitative Tests and Results

Page | 82

Using the SPSS package, the researcher descriptively carried

out the data analysis for each hypothesis in order to come

up with conclusions. Each hypothesis shows the main table

with average responses and the summary table with overall

sample mean.

5.5.1 Hypothesis One:

The hypothesis states: the use of rebased Kwacha has

simplified the accounting Records in the Banking Sector.

Decision Rule

If µ 5: Reject the hypothesis≤ ; Accounting records not Simplified

If µ > 5: Accept the Hypothesis: Accounting Records simplified

Page | 83

Page | 84

Table 5.8 Accounting Record Simplification Table Descriptive Statistics For BanksBank No.

Mean Std. Deviation

B1 5.7500 .46291

B2 5.2500 1.48805

B3 6.0000 1.06904

B4 5.7500 .88641

B5 4.6250 1.76777

B6 5.0000 1.92725

B7 6.5000 .53452

B8 5.6250 1.30247

B9 4.7500 2.37547

B10 7.0000 .00000

B11 3.5000 2.07020

B12 6.2500 .70711

B13 5.5000 .92582

B14 5.5000 1.41421

B15 5.7500 1.75255

B16 3.5000 1.69031

B17 6.5000 .53452

B18 5.6250 1.30247

Table 5.8.1 Accounting Record Simplification Summary Table

N Mean Std. Deviation Skewness Kurtosis

Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error

SAR 18 5.4661 .93604 -.785 .536 .645 1.038

Valid N (listwise) 18

Table 5.3 which is summarized in the summary table 5.2.1 shows

mean, µ=5.466

Since the µ > 5: Accept the Hypothesis

Conclusion

Accepting the hypothesis means that the researcher confirms that the use

of rebased kwacha has simplified the accounting records.

Page | 85

5.5.2

Hypothesis 2:

It states: The use of

Rebased Kwacha has

reduced the

transaction costs in the

banks

Decision Rule

If µ 5:≤ Reject the

hypothesis: Rebased Kwacha

not reduced

transaction Costs

If µ > 5: Accept the

Hypothesis. Rebased Kwacha

has reduced

transaction Costs

Page | 86

Table 5.9 Transaction Costs Table Descriptive Statistics

Mean Std. Deviation

B1 3.9286 1.89997

B2 6.5714 1.34246

B3 2.6429 1.27745

B4 3.7857 1.47693

B5 3.1429 1.99450

B6 5.1429 1.51186

B7 3.8571 2.03270

B8 6.9286 .26726

B9 1.3571 1.33631

B10 5.0000 2.00000

B11 2.2857 .82542

B12 3.0000 1.66410

B13 3.8571 1.40642

B14 3.5714 1.39859

B15 5.3571 1.15073

B16 4.2857 1.97790

B17 6.9286 .26726

B18 1.3571 1.33631

Valid N (listwise)

Table 5.9 .1 Transaction Costs

Summary Table

Results interpretation

The summary table shows that the calculated population mean,Page | 87

N Mean Std. Deviation Skewness Kurtosis

Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error

TC 18 4.0567 1.69212 .246 .536 -.516 1.038

Valid N (listwise) 18

µ = 4.0567

Since the µ < 5, we reject the hypothesis

By rejecting the hypothesis,the researcher concludes that

the use of rebased kwacha has actually failed to reduce the

transaction costs in the banks

5.5.3 Hypothesis 3;

It States That The Use Of Rebased Kwacha Has Improved The Atm Operations

Page | 88

Decision Rule

If µ 5:≤ Reject the Hypothesis: ATM Operations Have Not Improved

If µ > 5: Accept the Hypothesis. ATM Operations Improved

Table 5.10 ATM Operation Table Descriptive Statistics

BankMean Std. Deviation

B1 3.2500 1.50000

B2 1.0000 .00000

B3 4.2500 1.50000

B4 4.0000 2.30940

B5 3.0000 1.15470

B6 4.5000 1.73205

B9 7.0000 .00000

B10 1.0000 .00000

B11 1.0000 .00000

B12 2.0000 .81650

B14 2.0000 .00000

B15 3.0000 .00000

B16 3.7500 1.70783

B17 4.5000 1.00000

Valid N (listwise)

Page | 89

Table 5.10.1 ATM operation Summary Table

N Mean Std. Deviation Skewness Kurtosis

Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error

ATM 14 3.1607 1.69447 .555 .597 .535 1.154

Valid N (listwise) 14

The calculated population mean,µ =3.1607

Since µ > 5, we reject the hypothesis showing that the use of rebased kwacha has

not resulted into improvement in the ATM operations.

5.5.4 Hypothesis 4:

The hypothesis states that,the use of rebased Kwacha has brought efficiency

in the Payment Systems in the Banks

Decision Rule

If µ 5:≤ Reject the hypothesis: No Efficiency in Payment systems

If µ > 5: Accept the Hypothesis. Efficiency in Payment Systems

Page | 90

Table 5.11.1 Payment System Efficiency Summary Table

N Mean Std. Deviation Skewness Kurtosis

Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error

PSE 18 5.0728 .84017 .464 .536 .039 1.038

Valid N (listwise) 18

The calculated

population

mean µ = 5.0728,

Since µ > 5, we accept the

hypothesis.

By accepting the

hypothesis simply means that

the use of rebased kwacha

has resulted into

Payment System efficiency

in the banking sector

Page | 91

Table 5.11 Payment System Efficiency Table Descriptive Statistics

Mean Std. Deviation

B1 4.6250 1.40789

B2 4.7500 2.05287

B3 5.1250 1.45774

B4 4.0000 1.69031

B5 4.7500 1.38873

B6 5.1250 1.35620

B7 5.6250 1.59799

B8 6.3750 1.76777

B9 4.6250 1.30247

B10 6.1250 1.35620

B11 4.1250 1.64208

B12 4.5000 1.77281

B13 4.7500 .88641

B14 5.2500 1.48805

B15 3.6250 1.30247

B16 5.6250 1.30247

B17 6.8750 .35355

B18 5.3750 1.76777

Valid N (listwise)

5.5.5 Hypothesis 5:

It states that,the use of rebased Kwacha has resulted in Reliabilty and Convenience

in the banking services

Decision Rule

If µ 5:≤ Reject the hypothesis:

If µ > 5: Accept the hypothesis

Table 5.12 Reliability And Convenience Table Descriptive Statistics

Mean Std. Deviation

Page | 92

B1 4.7500 1.89297

B2 4.5000 1.73205

B3 5.7500 .50000

B4 5.2500 1.50000

B5 5.0000 2.16025

B6 5.2500 1.50000

B7 5.0000 2.16025

B8 6.7500 .50000

B9 4.7500 2.06155

B10 5.5000 1.29099

B11 4.5000 1.29099

B12 4.5000 2.38048

B13 5.2500 1.50000

B14 5.2500 1.70783

B15 5.0000 1.41421

B16 4.7500 .95743

B17 5.7500 1.50000

B18 4.5000 1.29099

(Valid N listwise)

Page | 93

Table 5.12.1 Reliability and Convenience Summary Table

N Mean Std. Deviation Skewness Kurtosis

Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error

RC 18 5.1111 .57664 1.358 .536 2.590 1.038

Valid N

(listwise)18

The calculated population mean, µ = 5.111 as shown above.

Since µ > 5, we accept the hypothesis

This shows that the due to the use of rebased kwacha, banking services have

become more reliable and convenient.

5.6 Qualitative Results

Semistructred interviews were set for some senior bank

officials who actively participated in the rebasing process

in each bank.Several questions were prepared according to

the five variables under investigation.

Hypothesis 1:The rebasing of kwacha has simplified of the accounting

records in Banks.

On this hypothesis,some senior bank officials were asked

these questions:

How has rebasing process changed the accounting records in

your bank?

Page | 94

Generally,17 out of 18 commercial banks explained that the

fewer figures on the system have simplied the data base.They

also explained that the reduced figures have improved the

comfort of computing large records and hence improved on

the accuracy.

However, two banks explained that there wasn’t any

difference at all as they were already working with fewer

figures even before rebasing as the accounting records had

already accounted for the last three zeroes(‘000).

Hypothesis 2:

Do you think the payment systems have improved in your bank since

kwacha was rebased?How?

Most of the banks explained that there wasn’t much notable

change only that it has simplified the drudgery in

transactions and calculations.Generally,the notable

responses were that atleast there has been improvement on

accuracy and turnaround time even though at very minimal

level.

Hypothesis 3:

The use of rebased kwacha has improved the ATM operations.

Most of the banks did not agree with the hypothesis.The

responses mostly given were:

Page | 95

The Pressure on the ATM has not reduced at all ,most

especially paydays,meaning that the costs of maintaining

these machines will not change.This general response showed

that rebasing process has not improved the operations of the

ATM.

Hypothesis 4:

The use of rebased kwacha has reduced the transaction costs of the banks

The main responses were mixed as follows:Many banks

disagreed with questions implying that transaction costs

have actually reduced.They pointed out that introduction of

Coins in the system means increased handling costs due to

counting and storage of coins.Others added that Coin scales

for weighing these same coins had to be procured.However,few

of them are optimistic that the transactions costs will

reduce overtime.

Hypothesis 5

The use of rebased kwacha has made banking services more efficient and

reliable.

Most of the banks agreed with the hypothesis by stating that

the K100 introduced has reduced the cash balances hence

making most cash-based transactions more efficient.Even some

machines like IBMs are becoming more reliable due to the

reduced balances.They generally accepted the fact that many

customers have become more comfortable carrying huge amounts

of cash to and fro the bank hall as the bulkiness of cash

has reduced due to introduction of K100 note.

Page | 96

However,some banks generally disagreed with the hypothesis

as they felt that the efficiency and reliability banking

services has not changed at.This is especially the banks

that have very few customers.

5.7 Discussion of The Results

The research study with topic,an evaluation of benefits of

using rebased kwacha in the banking sector and broken into

several hypothesis will be discussed by answering the

research questions asked:

Has the use of rebased of kwacha simplified the accounting records in

Banks?

Using both quantitative results and from semi structured

interviews, it has come out that the use of rebased kwacha

has successfully simplified the accounting records in the

banking sector in Zambia. It has been shown that the banking

sector has experienced a notable change in the accounting

records. The accounting records which includes records of

assets and liabilities, monetary transactions, ledgers,

journals, and any supporting documents such as checks and

invoices have now become much simpler to use than before

rebasing process. This means that the processing time of

certain transactions has really reduced

Has the use of rebased of kwacha reduced the transaction costs in thebanking sector?

Page | 97

Even though some banks qualitatively explained that

transactions costs have reduced, the results from most banks

and those collected from quantitative analysis, show that

the use of rebased kwacha has failed to reduce the

transaction costs in the banking sector. This means that the

much-expected reduction in the costs of banking services

because of rebasing has not been realised. It came out clear

that the initial transaction costs have not been covered,

hence non-reduction. However, many are optimistic that in a

long run, transaction costs may reduce.

Has the use of rebased kwacha improved the operations of the Automated

Teller Machine.

The research has shown that the use of rebased kwacha has

failed to improved ATM operations in the banking sector.The

pressure on the ATM especially during paydays has not been

eased. Long queues, breakdowns and sometimes non-dispensing

of cash have continued even in the post-redenomination era.

These ABMs have continued being unreliable most especially

in banks with a large customer base.

Has the use of rebased kwacha brought efficiency in the Payment Systems

in the Banks.

Page | 98

The results obtained from the qualitative analysis and

calculations have shown that the use of rebased kwacha has

resulted in Payment System Efficiency in the Banking

sector. The efficient payment system is a system that

settles payments quickly, safely and at reasonable cost.

This means that unlike ATMs, several bank machinery used to

dispense cash and other products like mobile transfer have

become more efficient in settling payments and transactions.

The simplified accounting records have even made it very

possible for banks to be become more efficient in doing

their transactions like interbank cash transfer within and

abroad.

Has the use of rebased kwacha has made banking services more reliable

and convenient.

From both methods used,results have shown that the rebasing

process has successfully made banking services be more

Reliable and Convenient.The improvement of the efficiency in

the payment systems has also made most of the banking

services more reliable and convinient.The simplified data

and electronic packages as a result of accounting record

simplification,has made reduced the pressure of transacting.

Page | 99

5.8 Chapter Summary.

The chapter outlined how the data was presented and

analysed.The researcher applied both qualitative and

quantitative analyse to investigate all the five

hypothesis.The chapter showed all the results for the tests

and the discussion of the obtained results.

Page | 100

CHAPTER SIX

CONCLUSIONS AND RECOMMENDATION

6.0 Introductions

This chapter focuses on conclusions drawn from the findings

and offer recommendations of this research work. Both

qualitative and quantitative data was collected and analyzed

in relation to the objectives and questions. The conclusions

will be presented in accordance with the hypothesis, stating

whether it was achieved or not.

6.1 Conclusion

The stability of any monetary system is very critical to

every nations economy.To uphold this stability, monetaryeconomists such as central bankers need to all the time pay

enough attention to monitor and check the behaviour of the

currency not only within the domestic economy but also on

the foreign exchange market.During the monetary policy

execution,the Central bank must be very proactive on the

type of instrument and economical tactics to apply in order

to stabilise the economy and the currency to make it morePage | 101

and more competitive.Some of the tools used could be the

operations at open market,others by controlling the money

supply through the bank fractional reserve ratios.Sometimes

some countries have used rebasing of a currency to try to

stabilise the monetary system in the country.

Therefore, this research has focussed on investigating the

behaviour of certain variables after the Zambian kwacha was

actually rebased. Five variables were analysed and in a

nutshell the research produced these results.(Also refer to

table 6.1 below for the summary)

This study has shown that the use rebased of kwacha has

successfully simplified the accounting records in the

banking sector in Zambia.This means the records where most

of the transactions are recorded in the commercial banks

have been simplified so much that users find it easier and

less complicated to feed thier systems with minimun errors.

In the next variable under consideration, it has come out

very clear that rebased kwacha has failed to reduce the

transaction costs in the banking sector.Even though the

tests have shown the failure to reduce transaction costs,it

should be stated that it is weak failure,meaning that in

near future when further researches are carried out,rebased

kwacha would have reduced the transactions

The investigation on the impact of the rebased kwacha on ATM

operations has shown that the use of rebased kwacha has

Page | 102

failed to improved ATM operations in the banking sector.This

signifies that the Bank of Zambia’s objective to rebase the

kwacha so that the operations of the ATM improve has

completely failed to be realised.

On the other hand, when the other variable was

tested,results have shown that the use of rebased kwacha has

resulted in to Payment System Efficiency in the Banking

sector.

Finally,from both methods obtained,results have shown that

the rebasing process has successfully made banking services

be more Reliable and Convenient.

Page | 103

6.2 Recommendations to Bank of Zambia and ForFurther Research

I wish to recommend the following to the Bank of Zambia andfor further research:

o During data collection, many banks complained about

poor quality notes printed after the rebasing period.

These notes easily fade and get spoiled most especially

K2, K5 and K10, hence there is need to produce Polymer

notes that may last longer. In fact the continued

deterioration of the kwacha notes will exert serious

pressure on the treasury as the costs of reprinting

will rise.

o Further researchers can look at the impact of the

rebasing process on Foreign Direct Investment and

investor confidence.

o Critical examination of how rebasing has impacted on

the performance of kwacha on the foreign exchange

market.

o Impact of rebasing of kwacha to the Zambia

marketeers:Case study Chisokone Market in Kitwe or City

Market in Lusaka or any large market place in Zambia.

6.4 Final Remarks

Rebasing process has been instituted and all the old notes

have been fully mopped out from the financial system.This

means that the much Prophesized and unprophesized” effects

of rebasing process are clearly taking place in all the

Page | 104

sectors.Bank of Zambia should not just sit and wait for a

long time before it can move in to assess the

economic’damage’ or ’buliding’rebasing process has impacted

on the Zambian economic system.The Bank’s promptiness in

carrying out not only surveys but also critical economic

research to assess the impact of rebasing on the the

economy, will assist in finding out whether or not the

recent economic shocks like depreciation of kwacha,rise in

the inflation levels and general rise in the standard of

living are directly or indirectly linked to the Rebsing

process.

It will further assist the bankers in crtitically analysing

any economic policies instituted before being implemented

and not laying pieces of critical policies hastily.

In fact the early serious evaluation of such policies will

make Bank of Zambia find out whether the rebasing process

was a worthwhile undertaking or it was a purely superficial

policy which has not added any value to performance of the

Zambian economy. Maybe we can also conclude with the two

Indonesian university lecturers, Prof. Dr. Euphrasia Susy

Suhendra and Sri Wayhu Handayani of Gunadarma University who

discovered that rebasing process is more likey to be done

in a country with a ”where a governemnt has just been

ushered into office.”

6.5 Chapter Summary

Page | 105

The concluding chapter summarised the results for this

research study.It has shown that rebasing process

has:Simplified the accounting records in the banks,Failed to

reduce the transaction costs in the commercial banks,Failed

to improve the operations of the ATM,Brought efficiency in

the payment systems and Made banking services more reliable

and convenient

The chapter finally brought out recommendations for the Bank

of Zambia and further research

Page | 106

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Page | 119

ANNEXURE A

QUESTIONNAIRE

PART ONE (1): MULTIPLE CHOICE QUESTIONS

1. SIMPLIFICATION OF ACCOUNTING RECORDS

A) The redenomination exercise has simplified your accounting recordsStrongly agree

Page | 120

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

B) How has the use of rebased kwacha simplified your accounting records? i. Easier data processing

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

ii. Easier record keeping Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

Page | 121

iii. Easier computations Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

C) Rebasing has reduced or eliminated Problems associated with accountingand data processing software

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

D) The use of rebased Kwacha has reduced errors associated with inputtingof financial data

Strongly agree

Agree

Agree somewhat

Undecided

Page | 122

Disagree somewhat

Disagree

Strongly disagree

E) Rebasing has reduced or eliminated difficulties associated withmaintaining bookkeeping and statistical records

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

F) Rebasing process has reduced Time spent in reviewing financial data ofthis bank

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

2.0 EFFICIENCY IN THE PAYMENT SYSTEMS OF BANKS

A) The payments system of this bank has improved as a result of usingrebased kwacha

Page | 123

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

B) How has the use of rebased Kwacha benefited the bank in the area ofpayments system?

i. Reduced turnaround time

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

ii. Reduced hall traffic

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Page | 124

Strongly disagree

iii. Increased accuracyStrongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

iv. Reduced clearing time Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

v. Increased ATM usage

Strongly agree

Agree

Agree somewhat

Page | 125

Undecided

Disagree somewhat

Disagree

Strongly disagree

vi. Conviniency and securityStrongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

C) The reintroduction of coins during the rebasing period has improved theefficiency in the payment systems of this bank.

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

3.0 IMPACT ON ATM OPERATIONS –(IF YOUR BANK DOESN’T HAVE AN ATM,GO TO ITEM 4.0)

A) The use of rebased kwacha has improved the operations of your ATMs.Strongly agree

Agree

Page | 126

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

B) In this short period of using rebased kwacha, the cost of maintainingthe ATM machine has reduced significantly…

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

C) The redenomination has reduced pressure on ATMs (such as reducedcustomer queues) resulting in fewer breakdowns

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

Page | 127

D) From my observation the redenomination has reduced queus in front of theATMs during salary payment weeks.

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

4.0) IMPACT ON TRANSACTION COSTS TO THE BANKS

A) The rebasing exercise has led to the reduction in the transaction costsStrongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

B) The rebasing exercise has led to the reduction in the transaction timeStrongly agree

Agree

Agree somewhat

Undecided

Page | 128

Disagree somewhat

Disagree

Strongly disagree

C) The bulkiness of the coins with its additional handling cost hassignificantly reduced the efficiency gains of the redenomination

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

D) The redenomination has reduced the breakdown in equipment such as notecounting machines, counterfeit detectors, bullion vans etc hencereducing extra reparation costs of these machines.

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

E) The rebasing exercise has reduced the cost of servicing or maintainanceof certain equipment such as note counting machines, counterfeitdetectors etc which has resulted in cost savings

Strongly agree

Page | 129

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

F) Taking other factors into account, the use of rebased kwacha in thisbank has reduced the need to employ more staff to handle certaintransactions

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

G) The rebasing of kwacha has reduced the need for more note countingmachines, counterfeit detectors, bullion vans, teller cages etc

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

Page | 130

H) In my opinion the overhead costs such as the cost of recaliberation ofequipment, software, IT etc is less compared to the expected benefitsthat will accrue over time

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

I) According to this bank, how has the rebasing exercise led to thereduction in the cash handling cost and hence transaction costs :i. Reduced labour costsStrongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

ii. Reduced logistical costStrongly agree

Agree

Agree somewhat

Undecided

Page | 131

Disagree somewhat

Disagree

Strongly disagree

iii. Reduced cost on bullion transportationStrongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

iv. Reduced unchecked bulk cashStrongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

v. Reduced turnaround timeStrongly agree

Page | 132

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

J) For this bank, the initial cost of the rebasing exercise is lesscompared to the expected benefits that will accrue overtime.

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

5.0 RELIABILITY AND CONVENIENCE OF BANKING SERVICESA) The redenomination has reduced the time it takes to serve a client per

average cash based transactionStrongly agree

Agree

Agree somewhat

Undecided

Page | 133

Disagree somewhat

Disagree

Strongly disagree

B) The redenomination in general has improved convenience of bankingservices

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagre

C) From my observation customers are more confortable carrying certainamount of cash to and from the banking hall as a result of theredenomination compared to pre redenomination time

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

Page | 134

D) From my observation significant numbers of formerly un-banked haveopened accounts due to, for example convenience of banking since theredenomination

Strongly agree

Agree

Agree somewhat

Undecided

Disagree somewhat

Disagree

Strongly disagree

END OF PART 0NE(1)

PART TWO(2): SEMISTRUCTURED INTERVIEWS

A. In which areas do you think the redenomination has reduced

transaction cost?

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_____________Page | 135

B. In which areas do you think the redenomination has increased

transaction cost?

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

____________________

C. On the net, do you think the redenomination has increased or

reduced costs? Why?

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

Page | 136

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

__________

D. Do you think the accounting records in your bank have been

affected by rebasing of kwacha?How?

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

____________________

Page | 137

E. In which aspects has the redenomination simplified the

accounting records in your bank?

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

___________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_______________

F. Do you think the payment systems have improved in your bank

since kwacha was rebased?How?

_________________________________________________________________

_________________________________________________________________

Page | 138

_________________________________________________________________

_________________________________________________________________

__________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_____________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

G. Are there any notable changes(good or bad) as result of the

reintroduction of coins in this bank? State challenges as a

result of coin reintroduction if any:

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

Page | 139

_________________________________________________________________

__________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

H. Do you think the rebasing has improved the efficiency of ATM

transactions? How and in which areas?

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

____

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_______________________________________________________

Page | 140

I. Do you think the rebasing has reduced maintenance cost of

the ATM machine? How?

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

__________________________________

J. From your observation, do you think customers find ATM

transactions more convenient and reliable with the

redenomination/rebasing of kwacha?How?

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

Page | 141

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_____________________________________________

Generally,is your bank more comfortable than before as

a result of using rebased kwacha?_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

Page | 142

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________

ANNEXURE B

DESCRIPTIVE ANALYTICAL RESULTS

Page | 143

ACCOUNTING RECORD SIMPLIFICATION TABLE Descriptive

Statistics

BANK N Mean Std. Deviation

B1 8 5.7500 .46291

B2 8 5.2500 1.48805

B3 8 6.0000 1.06904

B4 8 5.7500 .88641

B5 8 4.6250 1.76777

B6 8 5.0000 1.92725

B7 8 6.5000 .53452

B8 8 5.6250 1.30247

B9 8 4.7500 2.37547

B10 8 7.0000 .00000

B11 8 3.5000 2.07020

B12 8 6.2500 .70711

B13 8 5.5000 .92582

B14 8 5.5000 1.41421

B15 8 5.7500 1.75255

B16 8 3.5000 1.69031

B17 8 6.5000 .53452

B18 8 5.6250 1.30247

Valid N (listwise) 8

Descriptive Statistics

N Mean Std. Deviation Skewness Kurtosis

Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error

SAR 18 5.4661 .93604 -.785 .536 .645 1.038

Valid N (listwise) 18

Descriptive Statistics

N Mean

Std.

Deviation Skewness Kurtosis

Statist

ic

Statist

ic Statistic

Statist

ic

Std.

Error

Statist

ic

Std.

Error

RC 18 5.1111 .57664 1.358 .536 2.590 1.038

Valid N

(listwise)18

Page | 144

RELIABILITY AND CONVENIENCE TABLE Descriptive

Statistics

N Mean Std. Deviation

B1 4 4.7500 1.89297

B2 4 4.5000 1.73205

B3 4 5.7500 .50000

B4 4 5.2500 1.50000

B5 4 5.0000 2.16025

B6 4 5.2500 1.50000

B7 4 5.0000 2.16025

B8 4 6.7500 .50000

B9 4 4.7500 2.06155

B10 4 5.5000 1.29099

B11 4 4.5000 1.29099

B12 4 4.5000 2.38048

B13 4 5.2500 1.50000

B14 4 5.2500 1.70783

B15 4 5.0000 1.41421

B16 4 4.7500 .95743

B17 4 5.7500 1.50000

B18 4 4.5000 1.29099

Valid N (listwise) 4

DESCRIPTION

N Mean Std. Deviation Skewness Kurtosis

Statisti

c Statistic Statistic Statistic Std. Error Statistic Std. Error

TC 18 4.0567 1.69212 .246 .536 -.516 1.038

Valid N

(listwise)18

Page | 145

TRANSACTION COSTS TABLE

Descriptive Statistics

N Mean Std. Deviation

B1 14 3.9286 1.89997

B2 14 6.5714 1.34246

B3 14 2.6429 1.27745

B4 14 3.7857 1.47693

B5 14 3.1429 1.99450

B6 14 5.1429 1.51186

B7 14 3.8571 2.03270

B8 14 6.9286 .26726

B9 14 1.3571 1.33631

B10 14 5.0000 2.00000

B11 14 2.2857 .82542

B12 14 3.0000 1.66410

B13 14 3.8571 1.40642

B14 14 3.5714 1.39859

B15 14 5.3571 1.15073

B16 14 4.2857 1.97790

B17 14 6.9286 .26726

B18 14 1.3571 1.33631

Valid N (listwise) 14

Descriptive Statistics

N Mean Std. Deviation Skewness Kurtosis

Statist

ic Statistic Statistic Statistic Std. Error Statistic Std. Error

ATM 14 3.1607 1.69447 .555 .597 .535 1.154

Valid N

(listwise)14

Page | 146

ATM OPERATION

Descriptive Statistics

N Mean Std. Deviation

B1 4 3.2500 1.50000

B2 4 1.0000 .00000

B3 4 4.2500 1.50000

B4 4 4.0000 2.30940

B5 4 3.0000 1.15470

B6 4 4.5000 1.73205

B7 4 7.0000 .00000

B8 4 1.0000 .00000

B9 4 1.0000 .00000

B10 4 2.0000 .81650

B11 4 2.0000 .00000

B12 4 3.0000 .00000

B13 4 3.7500 1.70783

B14 4 4.5000 1.00000

Valid N (listwise) 4

Descriptive Statistics

N Mean Std. Deviation Skewness Kurtosis

Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error

PSE 18 5.0728 .84017 .464 .536 .039 1.038

Valid N

(listwise)18

Page | 147

PAYMENT SYSTEM EFFICIENCY TABLE Descriptive

Statistics

N Mean Std. Deviation

B1 8 4.6250 1.40789

B2 8 4.7500 2.05287

B3 8 5.1250 1.45774

B4 8 4.0000 1.69031

B5 8 4.7500 1.38873

B6 8 5.1250 1.35620

B7 8 5.6250 1.59799

B8 8 6.3750 1.76777

B9 8 4.6250 1.30247

B10 8 6.1250 1.35620

B11 8 4.1250 1.64208

B12 8 4.5000 1.77281

B13 8 4.7500 .88641

B14 8 5.2500 1.48805

B15 8 3.6250 1.30247

B16 8 5.6250 1.30247

B17 8 6.8750 .35355

B18 8 5.3750 1.76777

Valid N (listwise) 8