Following the footsteps of India, which discontinued certain rupee banknotes in November 2016, Kenya demonetised some of its banknotes in June 2019, in a bid to fight corruption in the country. Concerned that the old banknotes, particularly 1,000 shilling notes, are used illicitly, the country’s central bank decided to introduce a new generation currency including a new KSh 50, KSh 100, KSh 200, KSh 500 and KSh 1,000 notes. Here are five things you should know about the new Kenyan currency notes.
1. Promoting the use of mobile payment
Being able to track the flow of money is one of the aims that the Kenyan government hopes to achieve with the demonetisation. Digital payments are one way to achieve this and there has been a significant impact with the change in currency. According to local reports, traders in the East African country have started devising means to avoid being caught by the October 1st deadline to exchange the old 1,000 Kenyan shilling note1.Thereby, encouraging traders to sign up to receive payment via the famous mobile money platform, M-Pesa.
Given the inherent risk of counterfeits that typically accompanies the introduction of new currencies, it’s believed that the trend of mobile payment should continue even after the deadline has passed. Mobile payments help business owners alleviate the risk of accepting counterfeit notes.
Read also: Kenyans sending more money back home
2. Watch out for inflation
According to the Central Bank of Kenya (CBK), about 25 billion Kenyan Shillings has resurfaced into circulation after the launch of the new Kenyan currency. There’s been a simultaneous increase in deposits of foreign currency as bank deposits have increased to KSh 22 billion. Analysts are suggesting that people with illegal money may be moving to beat the CBK deadline by converting their old notes to dollars, which can then be easily exchanged for the new notes. The increase in money in circulation could lead to inflated prices as people rush to spend excess cash, according to analyst2. Perhaps, some of the new dollar deposits are a hedge against a devalued Kenyan Shilling.
3. Shillings stability relative to the dollar
Since the release of the new Kenyan currency notes, the Shillings appear to have been stable as compared to the dollar and its continental peers3. Analysts have attributed this to the improved liquidity in the Kenyan economy. If the demand for dollar rises significantly because of people looking to hedge against uncertainties around the new money regime or because of black money holders seeking an escape, the Kenyan shilling to dollar value could take a hit.
4. More tax revenue for the government
After Patrick Njoroge took over as Governor of Central Bank in 2013, Kenya’s debt per capita has increased three-fold to KSh 115,690 from KSh 42,215. The nation’s GDP per capita has grown by only 15% in the same period. One of the goals of the new Shilling notes is to bring in the informal market into the formal space, where the government is able to track information. This would help the Kenyan government to widen its tax net.
5. Controversies around the new 1,000 Shilling note
The new 1,000 Kenyan Shilling note features the portrait of Kenya’s first president, Mzee Jomo Kenyatta. There are two cases open in Kenyan court against the CBK’s decision to use Kenyatta’s image, against the directives of the nation’s constitution and without public consultations. However, there are others who see the use of Kenyatta’s image as a sign of respect for the founding father.
Sources:
3. https://af.reuters.com/article/investingNews/idAFKCN1VD1DD-OZABS
