Article 231(4) of the Kenyan constitution provides for redesigning, printing and distribution of the new currencies. The deadline for the implementation of this article of the constitution was due three years ago.
After the issuance of the first notes, the Central Bank of Kenya was dragged into High Court for awarding the printing contract to the same company. Luckily, the High Court ruled in favor of the Central Bank of Kenya that it had not violated any regulation in the awarding of the contract. Therefore, Central Bank Kenya (CBK) would go on to print and issue the new currencies. Regardless of what has happened, Kenyans should expect the following from the printing and issuance of the new currencies.
- Anyone with more than a million shillings and does not own a bank account will have to visit the Central Bank of Kenya if they want to exchange them with the new currency.
- The notes are colour-coded to show the richness of Kenya and its people.
- The Sh50 note promotes green energy, Sh100 note promotes agriculture, the Sh200 note promotes the social services, the Sh500 note promotes tourism and the Sh1, 000 note is a symbol of governance.
- The 1,000 shilling note is the highest value note in Kenya.
It is hard to accept that many people in Kenya are beneficiaries of financial proceeds of crime. New currency will ensure a prosperous economy by controling crimes such as tax evasion, corruption, money laundering and counterfeits. Abolition of one currency note in favor of another means that those holding old currency notes that are proceeds of crime cannot use them.
People will not be in a position to reintroduce the cash into the system for payment. This is a good move considering the massive loss of public funds with every sunrise and sunset. With the high expectations from Kenyans to see the government’s efforts in combating criminality, this policy by itself is an excellent tool.
The issuance of new currency in Kenya is different from India, where the government sold demonetization policy to control crime but ended up messing up with the monetary policy. The targeted criminals did not lose any wealth, yet the policy left a vulnerable society. Since then, economists have been working to restore the Indian economy.
Promoting the Use of Mobile Payments
People are rushing not to be caught by 1st October when the old currency notes will no longer be a legal tender. This has prompted people to adopt mobile payment methods, especially M-Pesa, to avoid holding the old currencies. The aim of the government is to track the flow of money. Digital currency is among the ways that are being used to achieve the government’s objective.
Traders in the neighboring countries have devised ways of avoiding coming into contact with old currencies through the use of M-Pesa. This has been attributed to the inherent risk of counterfeit notes that has accompanied the policy. Mobile payments help businesses avoid the risk of accepting counterfeit money.
Stability of the Shilling
The shilling seems to be stable since the introduction of the new currencies, unlike the dollar and its counterparts. Analysts argue that the stability of the shilling has been attributed to the improved liquidity of the Kenyan economy. There is a high demand for dollar because people are trying to protect themselves from uncertainties of the new currencies. The value of the Kenyan shilling in comparison to the dollar is likely to rise.
A Likelihood of Inflation
The Central Bank of Kenya stated that close to 25 billion ($241 million) Kenya shillings has emerged and is in circulation since the onset of issuance of new currencies. Also, there has been a significant deposit of foreign currencies into banks. Financial analysts argue that most people holding money from illegal proceeds are moving to beat the deadline. They are converting the old notes to dollars which are easier to exchange for new notes. The increase of money in circulation could lead to inflation as people are rushing to spend the excess cash before the deadline.
In summary, the printing and issuance of the new currency by the Central Bank of Kenya has its good and bad side. The Governor of CBK, Mr Njoroge stated that they have learned from India’s mistake and the government is keen not to ruin the economy. Fortunately, analysts say that if there are any likely adverse effects of the policy, they will be short term. If their statements are anything to go by, Kenya should embrace the policy and face the short term effects for long term gains.
Vincent is an experienced journalist from Kenya as well as a statistician. He has a degree in Applied Statistics with computing from the University of Eldoret.