Currency Change Consequences: Uhuru’s Decision on Old Notes Rocks Economy
Central Bank of Kenya (CBK) released a report on the effects of the 2019 demonetization of 1,000 Kenya Shilling notes on the economy on Friday, June 9.
CBK stated that the decision to change the currency was influenced by the need to address specific issues, such as combating inflation, cracking down on counterfeit currency, and increasing revenue.
CBK revealed, in a report signed by the departing governor Patrick Njoroge, that the directive enacted by former President Uhuru Kenyatta yielded the expected results and accomplished its intended purpose.
“The exercise’s success can be measured in multiple ways. Initially, the exercise was completed within the allotted timeframe of four months, with the complete transition to the new banknotes occurring within that timeframe.
As was the case in other nations, the exercise did not disrupt the economy, as key macroeconomic indicators such as inflation and exchange rates remained stable.
“Third, the exercise affected IFFs, as evidenced by the Ksh7.386 billion in notes that were rendered worthless at the conclusion. This was the result of non-compliance with the robust anti-money laundering (AML) and countering the financing of terrorism (CFT) checks in place,” the report stated.
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According to the report, the exercise conducted between 1 June and 30 September 2019. Addressed concerns about illicit financial flows (IFFs). And the emergence of counterfeit banknotes that posed a threat to the currency’s integrity.
Central Bank of Kenya explained that it was able to contain illicit financial flows. The majority of which originated from proceeds of commercial tax evasion, revenues from criminal activities, and public corruption.
According to the report, the success of the exercises depended on a gradual process. Robust engagement with key stakeholders, an extensive public awareness campaign, and a strong framework.
“The gradual procedure allowed sufficient time for the withdrawal of banknotes. The four-month timeline ensured a smooth conversion and adjustment to the new currency across the country, as well as sufficient time for logistics such as transportation, recalibration of cash machines to the new currency by banks and businesses, and for people to learn the features of the new notes, according to a report.
In addition to reducing the amount of currency in circulation, demonetization strengthened the currency and bolstered the export market.
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The report also noted instances in which demonetization disrupted business operations. Particularly as a result of the ignorance of some merchants.
CBK noted, however, that there was minimal disruption. Because banks worked closely with the Central Bank to ensure a sufficient supply of the new banknotes. In all their branches across the country and to facilitate the exchange of the old banknotes. For the new ones by the specified guidelines.
The process was extended to the East Africa region. To ensure that illicit financial flows (IFFS) from outside Kenya’s borders. Do not enter the country’s financial system via regional banks.
CBK stated that whenever posters or pamphlets were distributed, staff frequently remained in the area to engage in face-to-face conversations with the public during the week and on weekends.
“Completion of the process within the allotted time frame eradicated uncertainty. Continual engagements with key stakeholders throughout the exercise limited currency shortages throughout the nation.
The report stated in part, “After the launch of the new banknotes and the announcement to demonetize them, the CBK met with the CEOs of commercial banks and other relevant institutions to ensure a smooth demonetization process.”
Currency Change Consequences: Uhuru’s Decision on Old Notes Rocks Economy
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