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Central Bank should disclose its demonetisation success criteria

Thursday June 13 2019

new generation bank notes

Samples of the new generation currency notes unveiled by the Central Bank of Kenya on June 1, 2019. PHOTO | COURTESY 

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The policy of replacing old currency with new, which Central Bank of Kenya (CBK) announced, is easily the strongest stake ever driven into the heart of the corruption monster in Kenya.

Its elegance lies in its immense disruptive potential using minimal resources and a very basic plan.

The sudden withdrawal of the Sh1,000 note is a large spanner in the works of corruption schemers.

People who had carted away billions of shillings now run the real risk of finding themselves hoarding mere pieces of paper come October 1.

They are increasingly running out of both time and avenues of returning their loot to the financial system in Kenya or in foreign markets.

After all, various foreign governments have instructed their nationals to be on the lookout for the withdrawn note.


The Biblical promise that “there is no peace for the wicked” has come true, and they are, indeed, like “the tossing sea which cannot rest, whose waves cast up mire and mud”. Such disruptive strategies are what Kenya needs in the graft war.

Demonetisation is also expected to shine light on other forms of financial crime — including tax evasion, money laundering, terror financing and parallel/underground banking.

Banks that have had a habit of maintaining a separate so-called “red book” or Chopdi accounts, which they don’t report to the regulator, may have to explain the origins of these funds.

But even as CBK Governor Patrick Njoroge plays cat and banjo with the crooks, flogging them mercilessly, confident of public support, we have to be level-headed.


First, it has to be clear that demonetisation will not end all financial crime.

And that there are likely to be individuals who get their illicit funds in the financial system despite CBK’s best efforts, either because they did this before the announcement, own banks, have powerful accomplices or identify some currently unknown loophole.

These things happen and the plan is to disrupt the plots of a significant number of criminals — not to end all crime for all time, which is itself an impossible goal. The objective is effectiveness, not perfection.

The governor needs to define what success looks like as far as demonetisation is concerned, so that the public has a reference point. If he doesn’t disclose the success criteria, his enemies will, and declare him a failure.

Right off the bat, I think success can be defined along three general criteria.


On eliminating dark money, often the proceeds of crime, the CBK should communicate what percentage of the issued old notes it reasonably expects to receive back into the system by October 1.

Obviously, receiving back 100 per cent of these notes might mean all the illicit funds will have been laundered back in the system.

The public expects that some money will be locked out, though these expectations can be irrationally exaggerated.

It’s expected that counterfeit notes will be detected and reported if returned. Some may slip through.

High quality notes (called “Superbills”) have been observed in the wild and are almost undetectable. They are created by hostile or rival states and intended to sabotage the economy or buy assets, power and influence by their creators.

Is there an estimate of how much counterfeit money is sloshing around the financial system? Imagine a situation where more notes are returned than the CBK has ever issued!


Having spent Sh15 billion on replacing the old notes, there is a need for clarity on when the CBK expects to break even.

The public will need to know whether it has obtained value for money. This, of course, depends on the amount of money that remains unreturned and whether it presents a windfall gain or a loss to the government, given the significant investment.

At the very least, the unreturned cash should be worth Sh15 billion.

Of course this is a very simplified success criteria. I’m sure economists would add many other items.

A good general states specific and measurable objectives before the fighting begins. Often, whether the war has been won or lost depends on whether the stated objectives have been achieved. This is Governor Njoroge’s war.

Mr Kuria is a risk consultant specialising in detection, prevention and disruption of complex transnational financial crime. [email protected]