Kenya retires 1000 old notes, as CBK destroys Sh209 million pieces

All the old Sh1, 000 notes ceased to be legal tender on midnight Monday.

This was after Kenya’s Central Bank vowed not to extend the deadline and promised to destroy all the old notes collected as the final stage in the four-month demonetization process that officially ended Tuesday– this despite having not met its target.

“The Central Bank of Kenya (CBK) is pleased to announce the successful completion of the withdrawal (demonetisation) of the older series KSh.1,000 notes. The exercise, announced on June 1, 2019, was aimed at addressing the grave concern of illicit financial flows, and the emerging risk of counterfeits,” said the Banking regulator.

The CBK said Wednesday that it collected 209,661,000 pieces of the old Sh1, 000 notes (Sh209 billion) by September 30. As at June 1, there were 217,047,000 pieces of the old Sh1, 000 banknotes in circulation, with 7,386,000 pieces of the former Sh1, 000 notes (Sh7 billion) was not returned.

This means Sh7, 386,000,000 became worthless pieces of paper. By September 30, 149,692,000 pieces of the new Sh1, 000 notes (Sh149 billion) were in circulation.

“The demonetization process proceeded very well. In value terms, transactions worth up to Sh500, 000 were 62 per cent, up to Sh1 million were 79 per cent and up to Sh2 million were 92 per cent,” said Njoroge while addressing journalists in Nairobi,” adding that, “The demonetisation exercise had little impact on the economy—inflation, exchange rate, etc. There was little evidence of a rush to purchase high-value assets in cash.”

In June this year, Kenya fired a direct shot at the nation’s endemic corruption: by issuing a new generation of banknotes. In a surprise move, the government announced the 1,000 shillings ($10) note will be discontinued by October 1 in a bid to fight corruption, counterfeit, and money laundering.

As of 1st October 2019, over 200 million 1,000 shillings notes – the largest denomination of the country’s currency — in circulation will be discontinued after a four-month phase out.

Demonetization has been used by developed and developing countries alike as an administrative instrument to improve the central bank’s management of currency in circulation.

In theory, demonetization allows for adjustments in the quantity of money in circulation and reduces the chances of counterfeiting.  It also aims to encourage individuals holding funds in the black market to give up their holdings, and helps tax authorities in detecting funds once this “black cash” is deposited in the banking system.

To curb illicit financial flows and counterfeit notes — one of the core aims of Kenya’s recent demonetization drive.

“Looking forward, investigations will continue based on information from this process and the robust AML/CFT checks will remain entrenched in the financial institutions,” concluded Njoroge.