Money under mattress? Critics raise concern as CBK deadline for old Ksh.1K notes nears

The demonetisation order from the Central Bank of Kenya (CBK) which largely involves removing old series Ksh. 1000 notes from circulation risks closing as a zero-sum game, experts warn.

According to the industry stakeholders, the order bears no substantive marker of success in just over one month to the close of the September 30 deadline.

“There is a sense that we may have overstated how much money is under people’s mattresses. The expectations might be quite large,” Ken Gichinga, Mentoria Consulting Chief Economist said.

The reserve bank has been clear on its intent including the disgorging of illicit financial flows and a stimulation to the monetary base.

However, CBK falls short in its count of success even as it remains pain staking to filter out the ‘dirty cash’

Further, Kenya Business Guide Project Lead Sahil Shah argues for the existence of a thin line between clean flowing currency and illicit cash.

He challenges the notion of a majority stored stock of the old series Ksh. 1000 notes.

“The CBK has to be very careful in managing its expectations for the  demonetisation process as there is really no data point to by,” he said.

“Mattress money is flowing through the economy in cash generating businesses rather than sitting in stocks. This is while not all money sitting outside banks is illegal.

“Further, the flow and integration of illicit monies in the real economy is pervasive making it hard for monetary policy to be effective”.

Blind as a bat?

The CBK remains insistent on hitting the October 1 target with success.

However, the lender of last resort has eased sceptics even as it too remains dumbfounded on yard sticks to measuring the demonetisation exercise’s success.

According to the bank, the priority remains on the remonetisation of the economy through the issuance of Ksh. 1000 new currency notes as the stock of returned notes surpasses Ksh. 100billion to this point.

“I don’t think anyone has a handle on how much money has been stolen. We won’t have a figure on success until the very end.

“The information we have is not necessarily from currency-conversion statistics but also comes from other sources,” CBK Governor Patrick Njoroge told Citizen TV’s Yvonne Okwara late Thursday.

Monetary and Finance Statistics from the CBK depository corporation survey makes for the most accessible means to substantially measure success.

Even so, fresh statistics from the database hardly mirror the effect of demonetisation at this time.

Money Supply (M3) a net sum which also incorporates foreign currency deposits by Kenyan residents increased by a mere 2.1 percent between May and June this year to Ksh.3.5 trillion.

This as the economy’s liquidity (M3 + T) similarly stretched by Ksh. 69.8billion.

However, the rise in money in circulation sits below the  growth trend in the preceding 2018 period which saw the M3 and liquidity surge by 3.8 percent and Ksh. 137.2billion respectively.

Meanwhile, M2 rose by a mere Ksh.28 billion in June against a greater hold of an additional Ksh.60.8 billion between May and June in 2018.

M2 makes for an indicator of broad money in the economy.