The noose on the collective neck of graft lords suspected to be hoarding billions of shillings in safe houses continued to tighten Monday as the Central Bank of Kenya announced it had asked sister banks in the region to alert it on any suspicious transactions.
CBK Governor Patrick Njoroge warned last Friday that the current issue of the Sh1,000 note — the darling of counterfeiters, drug lords, and political criminals — will cease to be legal tender in October this year.
On Monday, Dr Njoroge said people “involved in illicit transactions” using “illicitly acquired cash” will find it impossible to get the money in the banking system or even to convert it into new-generation bank notes.
“We believe we have a very strong anti-money-laundering and counter-terrorist financing framework,” he said in Nairobi.
“I have spoken this morning to CEOs and operators of commercial and microfinance banks and I will talk to foreign-exchange bureaus.”
While Dr Njoroge did not elaborate on the value and extent of illicit cash flows, he admitted that the issue had become a concern to the government and needed to be dealt with “conclusively”.
By reaching out to forex exchange bureaus, Dr Njoroge wants to curtail the possible conversion of illicit billions of shillings into foreign currency through an elaborate scheme of money laundering.
The CBK has already placed a caveat on the amount banks will exchange into new notes. Any person with more than Sh5 million will be required to contact the CBK for vetting.
The Sh1,000 note accounts for more than 40 per cent of pieces of money in circulation.
At 217 million notes, the CBK says it has issued more Sh1,000 bills than any other denomination. The total value of the bills accounts for 83 per cent (Sh261.9 billion) of the combined value of all the money in circulation, Dr Njoroge said yesterday.
The next most valuable denomination is the Sh500 bill, 30.8 million of which are in circulation.
Also, and more curiously, Kenyans have come into contact with the Sh1,000 note at least twice as frequently as with the Sh100 bill, which only accounts for 23 per cent of notes in circulation. For every Sh200 note in circulation there are four Sh1,000 notes.
There are 54.8 million Sh200 notes, 126.4 million pieces of Sh100, 100.5 million pieces of Sh50, and 9.9 million units of Sh20 notes.
So, where are the millions of Sh1,000 notes that ought to be flooding the market? That is the puzzle Dr Njoroge aims to unravel as he embarks on a mop-up of the currency market. The existence of more Sh1,000 notes than those for Sh500, Sh200 and Sh100 combined also raises questions on whether the Kenyan currency has increasingly become worthless, forcing CBK to release more high-value notes than low-value ones in order to meet market demand.
Last year, CBK denied claims that the shilling was overvalued after the International Monetary Fund stopped Kenya’s access to a Sh152 billion ($1.5 billion) precautionary loan facility.
Despite CBK’s denials, opinion was divided on the matter, with some bankers suggesting that high demand for the Sh1,000 note was prove of a growing gulf between the rich and the poor, with the latter most likely to use the lower denomination notes of Sh50, Sh100, and Sh200. Kenya ranks among the most economically unequal countries in the world, so much so that the World Bank last year warned that uneven wealth distribution was a key hindrance to the achievement of the Vision 2030 development blueprint, which seeks to eradicate extreme poverty in the next 11 years.
Data from the Kenya National Bureau of Statistics shows that nearly four of every 10 Kenyans, or 36.1 per cent of the population, are poor.
About nine per cent of these are classified as hard-core poor.
Kenya Bankers Association chairman Habil Olaka said the printing of more Sh1,000 notes than other denominations was informed by demand as the CBK monitors which currency is used more frequently to determine the volumes needed in the market.
“The largest denomination was popular as a necessity since CBK only monitors the demand dynamics to determine which denomination is required in what volumes. For a note like Sh50, you may find that it was becoming so low in value that very few people had interest in it other than using it to give change,” Mr Olaka said.
The CBK governor also outlined how to exchange the old Sh1,000 notes for the new ones.
If you have less that Sh1 million in the old notes you may not need a bank account. Visit any bank to have them exchanged.
If you have between Sh1 million and Sh5 million you will need to visit a bank to exchange the money.
If you do not have a bank account but hold this volume of cash, you will be required to contact CBK, which yesterday held several meetings with key players in the financial sector, including heads of commercial banks, foreign exchange bureaus and money remittance service providers, regarding the issue.
The change of currency also continued to draw positive reactions from the private sector amid a legal battle over its legality.
The Kenya Association of Manufacturers lauded the move as a major step in curtailing the prevalence of the illicit economy.
Chairman Sachen Gudka said the introduction of the new-generation currency was timely as Kenya gears for better participation in the regional trade.
“This change is likely to redirect monies that are presently hoarded and funnelled into funding illicit economic activities into the formal banking and lending structures to finance the production of real goods and services,” said Mr Gudka.
“This will in turn positively impact the purchasing power of our citizens and trigger an increase in demand of locally made products, thus boosting genuine local businesses’ capacity to contribute towards strengthening our economic output as a country.”