Why CBK wants you to change thousands by Oct 1

Fredrick Obura President Uhuru Kenyatta and CBK Governor Patrick Njoroge (PHOTO: Courtesy) NAIROBI, KENYA: The Central Bank of Kenya (CBK) on Monday revealed the reasoning behind withdrawing Sh1000 notes by October 1.

 Responding to people who wanted the order to be implemented immediately, CBK Governor Patrick Njoroge said the bank acted with a lot of consideration on the impact an immediate ban would have on the majority of Kenyans, especially those living in remote parts of the country. Today the bank advised people with less than Sh5 million in the old notes to exchange at their banks and those with more than Sh5 million to do so at the Central Bank. “We had to benchmark with countries such as India who also withdrew some banknotes from the economy, theirs was an immediate withdrawal which also had its shortfalls,” said Governor Njoroge.
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“If we had gone the Indian way, people in remote areas would have been affected most for lack of enough time to exchange the notes with new ones,” he added. “The grace period will allow banks and other financial institutions to have enough stock of the new generation Sh1000 notes,” he said. According to BBC, in 2016 India withdrew 500 and 1000-rupee banknotes from its financial system overnight in a surprise crackdown on corruption and illegal cash holdings. The announcement prompted people across the country to rush to ATMs that offer 100-rupee notes in an attempt not to be left without cash over the next few days. The move, the Indian government had claimed, was aimed at making it difficult for hoarders of undeclared wealth, or "black money", to exchange their undeclared cash for legal tender at banks. According to Aljazeera TV channel, the Central Bank's annual report showed Indians subsequently returned 99.3 percent of the notes in circulation on November 8, 2016, when the cash ban was announced. SEE ALSO :What Kenyans saved money for in 2016 and 2019
"Most of the stated objectives have been accomplished. They were hoping that over 20 per cent of the cash would not come back, a big hit on those who held black money. The Central Bank data showed that failed," Pronab Sen, former chief statistician of India, told Al Jazeera. "The new data also showed that the push to move the Indian system away from cash to a cash-less economy has also been unsuccessful. The lesson is that you cannot wish away a cash-based economy. A cash-economy is not an illegal economy in any sense." The shock cancellation of India’s 500 and 1,000-rupee notes, which represented 86 percent of the currency in circulation, had caused huge disruption. CBK Governor at a press briefing in Nairobi on Monday (PHOTO: Twitter) At a press briefing in Nairobi on Monday, Dr. Njoroge said Kenya’s move to ban Sh1000 banknotes would check Illicit financial flows and counterfeits that have hit the Kenyan market. He added that the implementation of the new directive would take into consideration the success and failure of other countries that have taken the same path. On Saturday while launching the new bank notes of other denominations Njoroge said that older versions of smaller denominations will remain in circulation alongside the new ones, but after October 1, the older 1,000 shilling note would be invalid. SEE ALSO :Four more years wait for Imperial depositors
“We have assessed the grave concern that our large banknotes, particularly the older one thousand shillings series, are being used for illicit financial flows in Kenya and also other countries in the region,” Njoroge said. The move comes as lawmakers push for the implementation of amendments to banking laws that would relax  Kenya’s rigorous requirements for recording transactions above Sh1 million. CBK has said these changes could undermine efforts to tackle money laundering, financing of terrorism and proceeds from crime. Dozens of government officials and business people have appeared in court since May 2018 on charges relating to the alleged theft of hundreds of millions of shillings from public coffers. On Sunday more than 20 MPs allied to Deputy President William Ruto backed the decision to retire the Sh1,000 notes from the market. However, they said the move should come earlier than the set October deadline. It was not clear if they were talking tongue in cheek. SEE ALSO :Pillow banking still high despite growth of mobile money, survey
“It would go a long way in curbing the illicit financial flows in the country,” said South Mugirango MP Sylvanus Osoro. Soy MP Caleb Kositany said the introduction of new currency designs in the market would also help in taming corruption in the country. “Importantly, it would create certainty in the currency market, paving way for Central Bank of Kenya’s policies on taming inflation,” added Lang’ata MP Nixon Korir. Nyali MP Mohammed Ali asked those behind the move to push it to an earlier date than the one set.  “It is a healthy initiative for the country that should be brought earlier to take any challenges that the country has undergone with the old notes,” said Mr. Ali.