CBK to mop up 217.6 million old series Ksh.1000 notes


A sample of the new currency notes issued by the Central Bank of Kenya (CBK) ...
A sample of the new currency notes issued by the Central Bank of Kenya (CBK) PHOTO | CITIZEN DIGITAL

In Summary

  • The figure whose value translates to Ksh 21.8 trillion or 8.1 times the budgetary allocation for the 2019/2020 financial year will become the weighing scale for the intervention ahead of the October 1, 2019 deadline.
  • While Central Bank targets to replace all of the 217.6 million units of the old currency, the number of notes returned to the monk will have to come in at a lesser sum to count for an effective policy intervention.
  • Cash hoarders and crooks are likely to turn to lucrative segments of the economy such as the Forex market, gold trade and real estate in attempt to easily swipe their dirty cash for clean floating money.

Data from the Central Bank of Kenya (CBK) indicates that there are 217.6 million old-series Ksh. 1000 notes in circulation today, a pivotal figure to measuring the effectiveness of the impending demonetization policy.

The figure whose value translates to Ksh.21.8 trillion or 8.1 times the budgetary allocation for the 2019/2020 financial year will become the weighing scale for the intervention ahead of the October 1, 2019 deadline.

While Central Bank targets to replace all of the 217.6 million units of the old currency over the four months window, the number of notes returned to the monk will have to come in at a lesser sum to count for an effective policy intervention.

“We are looking to withdraw each and every one of those bills. Not every bill is involved in an illicit transaction, but there is a fair amount of involved currency. If you do not know how the money came to you, then its fine, that becomes paper after October 1st and I cross it off my list,” said CBK Governor Patrick Njoroge in a press briefing on Monday.

Not like India

While India makes for the most recent demonetization intervention by the state, preceding interruption by Zimbabwe and the Euro-zone, India’s case also makes for the worst case study in recent history.

According to data released in August 2018 by the Reserve Bank of India (RBI), 99 percent of the value of old bills that had been removed from circulation made their way back into the financial system, this even as the move caused liquidity chaos, costing the Indian economy an estimated 1.5 million jobs and 2 per cent in GDP growth.

“The figures suggested that criminals and other hoarders, like nearly everyone else, found ways to change their old bills for new ones,” reported The New York Times.

Cognizant of the failures of Indian Prime Minister Narendra Modi, Governor Njoroge is keen not to follow in the same footsteps.

The CBK has for instance instituted a lengthened 4-month window to facilitate the changeover in a bid to ease liquidity concerns while building on cohesive engagement with commercial banks, investigative agencies, microfinance lenders (MFIs) and sister central banks in the region to ensure illicit financial flows do not make it though the scrutiny sieve.

“This is a matter of national security and national importance. We are doing this to deal will prospective problems that may jeopardize our commerce, transactions and even our respect as Kenyans,” added Governor Njoroge.

Reservations

In spite of being lauded as the effective intervention to countering illicit financial flows, Abojani Investments founder Robert Ochieng challenges the effectiveness of the interposition terming the move as an uphill journey of ridding the economy of ‘dirty’ money.

“It would be difficult to keep 100 percent tabs with the market. Investigative agencies will have a difficult time in establishing the origins and destination of old currency. Moreover, traders who largely inject liquidity into the banking system may be used to slip back illicit flows back into the system,” he said.

According to Ochieng, cash hoarders and crooks are likely to turn to lucrative segments of the economy such as the Forex market, gold trade and real estate in attempt to easily swipe their dirty cash for clean floating money.

While CBK assures of a solid mitigating framework to include the hold on spend-enforced inflation, Regent Properties Chief Executive Officer Stephen Katei says activity in the real estate market is likely to remain muted, this as property agents exercise caution in their receipt of transactions in anticipation for a real estate gold-rush.

“Those with large cash-holds will rush to close deals in haste. Property managers will however be more on the alert and this will likely slowdown real estate transactions in this interim period,” he said.

The most pressing reservation will, however, be the ongoing legal suits against both the state and CBK which threaten to put brakes on the issuance of new currency.

East African Legislative Assembly (EALA) Member of Parliament Simon Mbugua has for instance filed a suit challenging the issuance of new currency on grounds of a missing public participation framework.

Further, activist Okiya Omtatah has also sued the CBK, Governor Njoroge and the Attorney General for the use of Mzee Jomo Kenyatta’s portrait on the new set of currency.

The CBK has however stuck on the defense insisting that the new issuance certified all required procedure to include public participation.

Kenyans have until midnight Monday, September 30, 2019 to exchange their old Ksh.1000 notes for new currency in a process mediated by both the CBK and its respective commercial banks.

Individuals with sums not exceeding Ksh.5 million will be able to exchange their old notes through their banks while those with sums exceeding the limit will be required to first contact the Central Bank.

The un-banked with amounts below Ksh.1 million will be at liberty to transact through any commercial banks in close quarters while those with sums above the ceiling to include retailers in frontier regions will require both the serve of notice and the facilitation of the CBK.

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