Capitalism is in dire crisis, its worst since the end of the Second World War.
At the heart of the decay of capitalism is paper money, especially the large-denomination bills which are used in illegal transactions.
In his new book, The Curse of Cash (2017), renowned economist Kenneth Rogoff posits that large-denomination bills aid white-collar crimes such as corruption, tax evasion, fraud, forgery, money laundering and illicit financial flows.
Paper money also constrain and cripple monetary policy by making it impossible for central banks to lower interest rates significantly.
Thus, from ancient China to today’s digital currencies, governments have removed a particular form of currency from circulation to deal with the curse of cash.
Even as technological advances continue to push cash to the margins of the legal economy, large-denomination bills are still the fulcrum of economies and are widely used to finance tax evasion, corruption, terrorism, drug trade, human trafficking, and the rest of a massive global underground economy.
It is in this context that on June 1, 2019, the Central Bank of Kenya (CBK) unveiled a new generation of banknotes as part of Kenya’s measures to curb corruption, fraud, money laundering and counterfeit.
The ‘banknote strategy’, also technically known as ‘demonetisation’, is perhaps the most recent and the sharpest arrow in President Uhuru Kenyatta’s anti-corruption quiver.
It entails the phasing out of the old generation one-thousand shilling banknotes totaling to 217.6 million pieces by October 1, 2019.
The move is intended to check illicit financial flows and counterfeits and clean-up Kenya’s nascent capitalist market.
Perhaps, CBK should have also considered phasing out 30.8 million pieces of Ksh500 banknotes and 54.8 million pieces of Ksh200, plausibly the next most likely dens of black marketeers.
The decay of capitalism as a result of corruption and other crimes is an existential threat to Africa, its development and future.
In the 2005-2014 decade, the continent lost between USD$36 billion (Ksh3.6 trillion) and USD$69 billion in illicit financial flows, about 74 per cent of approximately USD$93 billion per year that it needs to develop infrastructure to service its growth needs.
The continent is also losing to the tune of $50 billion in tax evasion annually and paying inordinately huge amounts to poorly negotiated and inflated contracts.
Reports by the Auditor General’s office have warned that Kenya is losing an average of Ksh1 trillion every year from tax evasion, corrupt individuals, cartels fuelled by government procurement processes and a corrupt public service.
Not surprisingly, in its 2017 Corruption Index, Transparency International ranked the country 143 out of 180 countries.
But a slew of financial regulations and heavy fines against banks aiding money laundering will make the new banknotes policy work.
In its 2018 Annual Report, Kenya’s National Intelligence Service (NIS) reports that 15 cases of money laundering with an estimated loss of Sh6 billion of taxpayers’ money were presented in court, while five commercial banks were fined for abetting money laundering and 20 others profiled for non-compliance with financial regulations in 2018.
As a result, Kenya has recorded some success in restoring the shine of its capitalism, recovering Sh6.5 billion worth of assets, convicting 122 persons and averting Sh26.1 billion losses.
The CBK now requires that those with over Sh1 million and with no bank accounts and those holding more than Sh5 million in cash should contact the bank in order to get the new generation Sh1,000 banknotes.
Kenya’s new banknote policy reflects a global trend to demonetise currencies to curb black money and restore the sheen of national brands.
In 1969, US President Richard Nixon declared all bills above $100 null and void in a move that restored the sheen of the American Dream dented by black money.
Even today, $100 bill is the maximum available for circulation. Recently, on November 12, 2015, China rolled out new high-tech 100 Yuan banknotes with stronger anti-forgery features in a move to tackle a serious problem of forgeries and clean its nascent market of corruption and forgery.
But the world is also littered with skeletons of failed banknotes initiatives.
In 1991, former Soviet Union reformist leader Mikhail Gorbachev was removed from power eight months after his plan to remove the higher denominations of ruble bills, the 50s and 100s, from circulation failed.
And more recently, on November 8, 2016, Prime Minister Narendra Modi announced the removal of all existing 500 and 1,000 rupee notes, introducing new 500 and 2,000 notes as part of India’s fight against black money, corruption and terror funding.
But by December 2016, the country’s political opposition claimed that over 100 people had died for diverse reasons relating to demonetisation.
Despite the popularity of the move in Kenya, there are also efforts to break the ‘banknote trap’, reflecting the tension between efforts to clean-up capitalism and democratic politics as resisters take to courts to derail and defeat the anti-corruption campaign.
On June 4, 2019, a case was filed in the Supreme Court of Kenya challenging the removal of the old Sh1,000 notes as illegal and the new-generation currency in Kenya unlawfully.
Another case has also been filed accusing the CBK of failing to allow citizens to express their views before printing the banknotes.
Increasingly, black money holders will turn to real estate and property market, massive purchase of automobiles, consumer goods and investment in gold and other luxury goods as ploys to hide black money.
In our digital age, the future of money is digital currency. But even as technology edges paper money to the margins, the hope of ending the crisis of capitalism lies in the unfolding digital revolution.
Professor Peter Kagwanja is a former Government Adviser and currently Chief Executive of Africa Policy Institute, Nairobi.