Economy
83pc of bank notes to be withdrawn by October 1
Tuesday, June 4, 2019 10:51
By EDWIN OKOTH
More than 80 percent of the value of Kenyan currency notes in circulation will be withdrawn by October 1 following the introduction of the new Sh1,000 notes in a move aimed at combating illicit financial flows and counterfeiting.
However, older versions of the smaller denominations will remain in circulation alongside the new ones launched last Saturday, but after October 1, the older Sh1,000 note will all become invalid.
The Central Bank of Kenya (CBK) Monday unveiled the rules that will guide the replacement of the Sh1,000 notes, which account for 83 percent of the Sh540 billion in circulation or Sh217 billion. The Sh500 notes account for 5.9 percent, Sh200 (4.2 percent), Sh100 (4.8 per cent) and Sh50 (1.9 percent).
This illustrates that the Sh1,000 note remains the currency king in Kenya, a position that has seen it favoured by those making fake money as well as those hiding illicit cash outside the banking system.
“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,” said Dr Patrick Njoroge, the CBK governor.
“Will this country become a country of thieves, (people who) transact illicit flows that sort of get rich (quick) stuff? I would submit that it is not,” he said yesterday.
The move to demonetise the old Sh1,000 shilling banknote has triggered a legal storm with two court petitions filed Monday challenging the new currency because of the use of the statue of the founding president Mzee Jomo Kenyatta in the notes with the petitioners arguing that it contravenes the 2010 Constitution.
The law prohibits the use of portraits on currency notes but is silent on statues.
The petitioners have also accused the CBK of failing to involve the public before the notes were printed.
However, Dr Njoroge Monday said the CBK will defend itself in the suit filed at the High Court. He also said the actions so far taken by the regulator were within the law.
The withdrawal of the old Sh1,000 notes will not be easy given that they account for 83 percent of the value of cash in circulation and 40 percent of the currency in use, bankers have warned.
The bankers lobby — Kenya Bankers Association (KBA) — said hitches are expected in the exchange of the notes.
“Anything new will obviously have some operational hiccups. We are aware of this and we are putting together a systematic way of identifying and dealing with any challenges that may come up,” KBA chairman Habil Olaka told the Business Daily.
Kenya had considered the lessons from India’s 2016 move to scrap high-value currency notes, known as demonetisation, hence the four-month window to give the public time to exchange the old notes for new ones, Dr Njoroge said.
Under the rules provided by the CBK, those seeking to exchange more than Sh5 million will require CBK approval where a basic assessment will be done on the source of the money and its ownership before authorisation is granted.
CBK said individuals in this category are “very few”. Earlier in the year, CBK said less than one per cent of Kenyans had bank deposits exceeding Sh1 million.
The central bank’s nod will also be required for those seeking to exchange at least Sh1 million if they have no bank accounts.
Those with less than Sh1 million and in need of the new currency will be required to deal at bank branches or at the CBK if they do not have accounts. But they will, however, need to have official identification.
“For between Sh1 million to Sh5 million, you will need to go to your bank where they know you, your type of business and they will still ask the usual questions and you sign the usual declaration forms just like it has been done before,” Dr Njoroge said.
“Those who do not have bank accounts and want to exchange this amount will need to contact the CBK. We will then endorse them and they can go to a designated bank branch,” he said.
The governor said the Central Bank has not quantified the volume of illicit flows, but noted that there had been enough evidence to force authorities to act.
“You don’t wait until the house is really burning before you use the fire extinguisher. When you begin to smell smoke, grab that fire extinguisher and begin to deal with it,” he said.
Dr Njoroge said there would be no turning back on the efforts to stem the flows from money laundering, financing of terrorism and proceeds from crime.
Given Kenya’s status as the most advanced economy in the region, the CBK will co-ordinate the move to scrap the Sh1,000 banknotes with its counterparts in the region, where the Kenyan currency is widely accepted and used for payments.
“The illicit flows are spread around neighbouring countries. The Kenyan currency is the regional US dollar,” Dr Njoroge said. Dozens of Kenyan 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 while others face money laundering charges.
Millions in cash have been seized in their private residences and the State has been forced to freeze more in bank deposits with some individuals on less than Sh150,000 monthly pay transacting more than Sh1 billion in three years.
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