Central Bank of Kenya Governor Patrick Njoroge displays the new
generation currency notes at a press briefing on June 3, 2019 in
Nairobi. PHOTO | SILA KIPLAGAT | NATION MEDIA GROUP
The noose on the collective neck of graft lords suspected to be
hoarding billions of shillings in safe houses continued to tighten
Monday as the Central Bank of Kenya announced it had asked sister banks
in the region to alert it on any suspicious transactions.
CONVERSION
CBK
Governor Patrick Njoroge warned last Friday that the current issue of
the Sh1,000 note — the darling of counterfeiters, drug lords, and
political criminals — will cease to be legal tender in October this
year.
On Monday, Dr Njoroge said
people “involved in illicit transactions” using “illicitly acquired
cash” will find it impossible to get the money in the banking system or
even to convert it into new-generation bank notes.
“We believe we have a very strong anti-money-laundering and counter-terrorist financing framework,” he said in Nairobi.
“I
have spoken this morning to CEOs and operators of commercial and
microfinance banks and I will talk to foreign-exchange bureaus.”
While Dr Njoroge did not elaborate on the
value and extent of illicit cash flows, he admitted that the issue had
become a concern to the government and needed to be dealt with
“conclusively”.
By reaching out to
forex exchange bureaus, Dr Njoroge wants to curtail the possible
conversion of illicit billions of shillings into foreign currency
through an elaborate scheme of money laundering.
The
CBK has already placed a caveat on the amount banks will exchange into
new notes. Any person with more than Sh5 million will be required to
contact the CBK for vetting.
The Sh1,000 note accounts for more than 40 per cent of pieces of money in circulation.
WORTHLESS
At
217 million notes, the CBK says it has issued more Sh1,000 bills than
any other denomination. The total value of the bills accounts for 83 per
cent (Sh261.9 billion) of the combined value of all the money in
circulation, Dr Njoroge said yesterday.
The next most valuable denomination is the Sh500 bill, 30.8 million of which are in circulation.
Also,
and more curiously, Kenyans have come into contact with the Sh1,000
note at least twice as frequently as with the Sh100 bill, which only
accounts for 23 per cent of notes in circulation. For every Sh200 note
in circulation there are four Sh1,000 notes.
There
are 54.8 million Sh200 notes, 126.4 million pieces of Sh100, 100.5
million pieces of Sh50, and 9.9 million units of Sh20 notes.
So,
where are the millions of Sh1,000 notes that ought to be flooding the
market? That is the puzzle Dr Njoroge aims to unravel as he embarks on a
mop-up of the currency market. The existence of more Sh1,000 notes than
those for Sh500, Sh200 and Sh100 combined also raises questions on
whether the Kenyan currency has increasingly become worthless, forcing
CBK to release more high-value notes than low-value ones in order to
meet market demand.
Last year, CBK
denied claims that the shilling was overvalued after the International
Monetary Fund stopped Kenya’s access to a Sh152 billion ($1.5 billion)
precautionary loan facility.
HINDRANCE
Despite
CBK’s denials, opinion was divided on the matter, with some bankers
suggesting that high demand for the Sh1,000 note was prove of a growing
gulf between the rich and the poor, with the latter most likely to use
the lower denomination notes of Sh50, Sh100, and Sh200. Kenya ranks
among the most economically unequal countries in the world, so much so
that the World Bank last year warned that uneven wealth distribution was
a key hindrance to the achievement of the Vision 2030 development
blueprint, which seeks to eradicate extreme poverty in the next 11
years.
Data from the Kenya National
Bureau of Statistics shows that nearly four of every 10 Kenyans, or 36.1
per cent of the population, are poor.
About nine per cent of these are classified as hard-core poor.
Kenya
Bankers Association chairman Habil Olaka said the printing of more
Sh1,000 notes than other denominations was informed by demand as the CBK
monitors which currency is used more frequently to determine the
volumes needed in the market.
“The
largest denomination was popular as a necessity since CBK only monitors
the demand dynamics to determine which denomination is required in what
volumes. For a note like Sh50, you may find that it was becoming so low
in value that very few people had interest in it other than using it to
give change,” Mr Olaka said.
The CBK governor also outlined how to exchange the old Sh1,000 notes for the new ones.
If you have less that Sh1 million in the old notes you may not need a bank account. Visit any bank to have them exchanged.
LEGALITY
If you have between Sh1 million and Sh5 million you will need to visit a bank to exchange the money.
If
you do not have a bank account but hold this volume of cash, you will
be required to contact CBK, which yesterday held several meetings with
key players in the financial sector, including heads of commercial
banks, foreign exchange bureaus and money remittance service providers,
regarding the issue.
The change of currency also continued to draw positive reactions from the private sector amid a legal battle over its legality.
The Kenya Association of Manufacturers lauded the move as a major step in curtailing the prevalence of the illicit economy.
Chairman
Sachen Gudka said the introduction of the new-generation currency was
timely as Kenya gears for better participation in the regional trade.
“This
change is likely to redirect monies that are presently hoarded and
funnelled into funding illicit economic activities into the formal
banking and lending structures to finance the production of real goods
and services,” said Mr Gudka.
“This
will in turn positively impact the purchasing power of our citizens and
trigger an increase in demand of locally made products, thus boosting
genuine local businesses’ capacity to contribute towards strengthening
our economic output as a country.”
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