Unaccounted for mattress money that never returned into circulation


Kenyan shilling

In Summary

  • The Central Bank of Kenya had projected money in circulation at the end of May at Ksh.217.6 billion. However, the figure did not include outflows outside the reserve bank handle.
  • The lengthened four month-window has equipped CBK with a greater insider knowledge on cash transactions in the country allowing the State to tighten its already established Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework.
  • The measured success in the demonetization process which also encompasses the retention of macro-fundamentals is however achieved against instances of reservations.

The Central Bank of Kenya (CBK) managed to put to waste sums greater than the reported Ksh.7.4 billion worth of the demonetized Ksh.1000 notes, financial sector allied sectors now reckon.

While the success of the process cannot be guaranteed down to the letter, the return of notes lesser than the circulating net total of 217.6 million individual Ksh.1000 notes as of June 1 is by itself a marker of success.

“This would mean that the illicit money never found its way into the system as the number of returned notes has not gone up,” said Kenya Business Guide research analyst Titus Maina.

The remarks by Mr. Maina underscores CBK’s own account on the outcome of the process which highlighted the tight-lidded scrutiny of transactions over the four month window.

“The money was never in the system and it never came in. This money is neither in circulation today,” CBK Governor Patrick Njoroge told a news conference on Wednesday.

Dr. Njoroge pinned the success of the demonetization process on prior preparations by the financial sector while laying emphasis on the planning and preparation rather than the outcome of the undertaking.

“We went the Eliud Kipchoge way; plan, prepare deploy. The banks were never off the hook in their handling of transactions and bared a responsibility,” he added.

“Some transactions were actually rejected…They could ask you to keep your money if they had suspicions. The shauri yako (you’re on your own) kind of way”

The Central Bank of Kenya had projected money in circulation at the end of May at Ksh.217.6 billion. However, the figure did not include outflows outside the reserve bank handle.

In the end however, the missing link did not factor in the process as money held outside the CBK control never resurfaced.

Kenyans returned notes worth Ksh.209.7 billion in the four months to September 30 as the CBK immediately lay to waste 7.4 million old series Ksh.1000 notes or an equivalent Ksh.7.4 billion.

During the period, the reserve bank conducted 15-targeted on-site inspections while flagging down 3172 transactions.

Eyes on your money

The lengthened four month-window has equipped CBK with a greater insider knowledge on cash transactions in the country allowing the State to tighten its already established Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework.

Commercial banks and other financial institutions were required to submit weekly reports on transactions in an order that is now bound to stay on a permanent basis.

“Our monitoring was not just about the flows. How else would we have found out about Narok? Our approach was typical of pincer movement,” said the CBK Governor.

East Africa Tax and Governance Network project coordinator Leonard Wanyama rates the increased capacity in monitoring as the key takeaway from the process while paying homage to the tough task of monitoring illicit financials flows.

“Increased monitoring will be positive for the bank. We can already see it from the number of flagged down transactions and dealings. It is usually very difficult to set apart illegal financial flows,” he said.

Limitations

The measured success in the demonetization process which also encompasses the retention of macro-fundamentals is however achieved against instances of reservations.

Technical Tax Advisor at the Tax Justice Network Africa hold out that some of the notes sieved off the financial system may have represented legitimate flows.

“Those who had such currencies feared to be exposed although among them were some with legitimate currencies but feared being stigmatized in the process,” he said.

Economist Edward Kusewa meanwhile lays down the importance of further disclosures by financial institutions on the records of transactions made during the period to reach a decisive measure of purged amounts.

“There is a culture of secrecy among state agencies and hence we would anticipate disclosures by financial institutions on the estimates of black money removed from circulation,” he said.

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Story By Kepha Muiruri
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