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Benefits Of New 50,000 Kip Banknote
Many Lao people say in different ways about the use of the new 50,000 kip banknote released in January 2006. The commonest word is "inflation". However, the Lao financial environment has been stable since the day the new banknote was available for use. Thus, people who like to say the word "inflation" may need to understand about the financial mechanism.
In fact, the printing of a larger denomination does not always mean the currency is inflated. Of course if the new banknote is printed with no purpose of replacement for the old damaged banknote or it is printed without the strength of exports or it is printed with no properties secured, it will then be surely inflated.
However, the Central Bank Governor Phounphet Khamphounvong confirmed that the release of the new denomination aimed to facilitate transaction and increase kip utility value among the users.
Mr Phouphet explained that the release of the new banknote should not impact the country's financial state as the nation has experienced macro economic stability, revenue collection in the first quarter of the current fiscal year is in accordance with plans, the economy continues growing steadily, the inflation rate has gone down and goods prices have stabilised.
These mean the use of a larger denomination is to open up the opportunity for people to carry more kip when they have to travel or pay for some services that need a great amount of money.
One anonymous businessman said "I normally do not carry kip when I have to take long distance travel or when I have to buy large items because it is too heavy. Imagine how big bunch of money do I have to carry if I have to enter a nightclub and order two bottles of whisky accompanied with food."
In fact, the largest denomination note available in the past is the 20,000 kip. It is valued less than US $2 banknote or less than 100 Thai baht. People's wallet is usually comfortable for less than 40 banknote. If it contains more than that it may not suit the pocket and can easily be lost. People, therefore, always keep Thai baht or US dollar instead of Lao kip. It also looks bad when people have to carry a big bunch of money when they need to spend.
If people in Laos carry more kip, the kip will be circulated in a larger amount. This means they use more kip. When a great number of people use kip, they would keep less foreign currencies. Then the bank will have more foreign currencies and people will then be able to buy foreign currencies from the banks. When the banks are able to freely sell foreign currencies, there will never be illegal currency exchange. Then the exchange mechanism will be stable.
Considerably, the use of 50,000 banknote still does not meet the demand of the market. However, the government needs to study the rhythm of market growth before it could release of each new large banknote.
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