Post by Lao Pride Administrator on 17th Nov, 2010 at 6:30am
The Bank of the Lao PDR is circulating new 100,000 kip banknotes amid concerns the move will add more pressure to the bank's struggle with rising inflation.
The central bank announced the new banknote yesterday to mark the 450th anniversary of Vientiane as the nation's capital and the 35th anniversary of the establishment of the Lao PDR.
The 100,000 kip memorial banknote is legal tender and can be used to pay off debts in accordance with the law, according to a statement released by the central bank.
The bank also released memorial gold and silver coins to mark the anniversaries. Booths at the That Luang esplanade, Lao ITECC and National Stadium will sell the coins and banknotes from November 15.
Deputy Director General of the Lao National Economic Research Institute, Dr Leeber Libuapao, warned yesterday that the central bank had to control circulation of the new banknote otherwise upward pressure on inflation would occur.
“The amount of high-denomination notes released into circulation should not be more than 20 percent of the total banknotes available, otherwise it will put strong pressure on inflation,” he said, adding that the central bank should promote the use of low denomination notes.
He said an absence of low denomination banknotes in circulation forces traders to sell goods and services at higher prices.
At present, many traders face a shortage of low denomination banknotes and charge higher prices to avoid having to provide small change.
Central bank officials said many commercial banks do not circulate low denominations of kip because they provide banknotes through ATM machines, with 20,000 and 50,000 kip banknotes the most convenient and practical for cash withdrawals.
Head of the Bank of the Lao PDR's Currency Issue Department Mr Souphat Khotyotha said the release of a memorial banknote is common in many countries, including Thailand and China.
He said most people who purchase the 100,000 kip note would keep it as a special memento.
He also said the central bank would limit the release of the new banknote and therefore the new tender would not lead to higher inflation.
Mr Souphat said the central bank would buy back 100,000 kip notes if it was found that too many were in circulation.
Bank officials said that, despite the introduction of a high denomination banknote, the total amount of money in circulation would remain unchanged and the inflation rate would not be affected.
The inflation rate in Laos has continued to swell in recent months as the global economy recovers from a recession. The main driving force of inflation in Laos is higher prices of fuel and food. The inflation rate in October reached 8 percent.
The government has stated it will try its best to keep inflation below real GDP growth to ensure people are not unduly affected by rising prices.