On September 30, 2019, the withdrawal of the old series Sh1,000 notes was successfully concluded. This demonetisation commenced on June 1, 2019, following the launch of Kenya’s new generation notes.
The new notes symbolise green energy, agriculture, social services, tourism and governance, which are the drivers of a newly reborn and prosperous Kenya.
In withdrawing the older series Sh1,000 notes, the Central Bank of Kenya (CBK) assessed the grave concern that they were being used for illicit transactions and financial flows in Kenya and the region.
More recently, there has also been the emergence of counterfeits. Both concerns posed a threat to the credibility of the Kenyan currency, requiring swift action.
In designing the demonetisation strategy, CBK examined the experiences of other countries — such as Australia, the European Union, Pakistan, the United Kingdom and, most recently, India.
The critical consideration was to balance the objective of addressing illicit financial flows and counterfeits while ensuring that the process was not disruptive to the public and the economy.
In this regard, a gradual approach over four months was preferred over an abrupt shock and awe one.
Four key elements underpinned the strategy. First, ample public awareness was doubly important, given that CBK had concurrently launched the new generation currency.
It was critical that all Kenyans were made aware of the ongoing demonetisation but also the features of the new currency.
With support from the banking sector and other stakeholders, CBK traversed the country, engaging Kenyans.
A multi-channel campaign was also executed with over 15,000 advertisements and coverage in social media, television, newspapers and more than 80 mainstream and vernacular radio stations.
Secondly, it was important to quickly provide and maintain wide availability of the new currency. CBK worked closely with banks to ensure a smooth roll-out of the new currency countrywide.
CBK’s support to banks and other players was needed to recalibrate the verification of note-counting machines, ATMs and parking payment machines to use the new notes.
Special emphasis was placed on the far-flung areas, cognisant of their heavy use of cash. A robust feedback mechanism was deployed.
Thirdly, it was essential that measures on Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT) be applied fully.
Commercial banks, forex bureaus and payment service providers (PSP) have over the past few years strengthened their AML/CFT screening. Traders in high-value goods also came under increased scrutiny.
Reporting and monitoring was scaled up with positive results: 15 targeted inspections on financial institutions saw more than 3,000 Suspicious Transaction Reports (STRs) flagged for further investigation.
Fourthly, a collaborative approach with other official entities was adopted. Investigative agencies were brought on board to examine the available information for evidence of crimes and other central banks roped in.
On September 30, inflation, the exchange rate and other key macroeconomic indicators remained stable. There were no last-minute panic queues outside banking halls. Old series Sh1,000 notes valued at Sh7.4 billion had not been exchanged and became worthless.
Demonetisation marks a single step in the fight against illicit finance and corruption more generally. Sustained efforts are needed to deliver victory. The strong AML/CFT filters that were applied will continue to be deployed.
But, most importantly, we have created a launch pad for progress towards using less cash for transactions as we increasingly embrace mobile and electronic banking. This will make it harder to launder ill-gotten funds and for cash-based corruption to survive.
Dr Njoroge is the Governor of the Central Bank of Kenya.
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