Demonetisation has hit counterfeiters for six and struck a blow for graft war

Saturday June 08 2019

Central Bank of Kenya Governor Patrick Njoroge displays new notes at his office in Nairobi on June 3, 2019. Demonetisation can only be effective as a tool for fighting corruption. PHOTO | FILE | NATION MEDIA GROUP


In the lead-up to the demonetisation (retirement and replacement) of the Sh1,000 note, a stirring video clip, starring angry money man Paul Kobia, ruled social media.

Mr Kobia asked President Uhuru Kenyatta to sack Central Bank of Kenya Governor Patrick Njoroge for impeding investment.

He demanded Dr Njoroge rescinds stringent rules barring withdrawals of as much money as one wanted as frequently as one wished and, especially the one requiring that one explains one’s large deposits.

Mr Kobia declared in his tirade of abuse that Dr Njoroge’s rules had forced business people to not bank their money and instead keep it at home.

Enter demonetisation. People who keep money in their homes do not account for the sources of it nor do they pay the taxes due.

Money in the bank is traceable and taxable. Cash in the mattress is unaccounted for money.



So, when a popular and high denomination currency such as thao (one thousand) is retired and needs to be replaced, then, hidden money or black money must be exposed or it becomes zero in an instant.

Demonetisation then will enable the government know who has what money and from what and proceed to levy the taxes accruing.

Counterfeiters have been hit for six. They must begin work afresh to produce imitations of the new thao while trying desperately to dispose of their current bulk stock.

Demonetisation just made counterfeiting more expensive and investment in black economy a bit more stressful.

The discovery of huge mounds of fake currency in recent times, some of it in a bank, forced Dr Njoroge to act.

Demonetisation has struck a blow for the war against corruption. Proceeds from corruption and monies for bribery, for purposes of corruption, are usually not banked.


This money must now go to the banks before it can return to the mattress.

Of course the owners will devise ways of banking it in smaller quantities in different banks in different parts of Kenya via different proxies to attract as little attention as possible to themselves.

If indeed demonetisation has been deployed as a weapon against corruption then it should be easy for investigators to gather the evidence they need, catch their targets and prosecute them.

Not surprisingly, demonetisation has been portrayed as politically driven. Kenya’s politics and black money or, put another way, Kenya’s politics and money, are wedded in matrimony of graft.

No wonder controversy reigns over fundraisers for churches which are regarded variously as laundries for black money, partakers in the cup of graft and bending the knee to owners of mammon.


Political money, like money for corruption, is mattress-bound because bribery is kept away from prying eyes with transactions taking place more in bunkers than banks.

Now a politician with Sh2 billion, obviously in Sh1,000 bank notes, must find ways of spending and or banking it without attracting the attention of the Ethics and Anti-Corruption Commission or some other agency.

If not his capital for political investment will be rendered useless and ambition scuttled. And if indeed there is a politician with that kind of money in the mattress, he may feel his world collapsing around his ears.

The same may be said for cash that is the proceeds of downright crime such as bank heists, robberies, narco-trafficking and facilitating terrorism. Assorted criminals too must remove their cash from the mattresses.


The upshot of all this is that between now and end of October banks will receive a lot of money.

This means government will be able to estimate the size of the black economy and even know the actors.

But demonetisation will not end black money. At some time all this money will go back to the mattress. The counterfeiters will be back in business as will the armed robbers and politicians.

As a political tool, demonetisation would have worked if it had been unleashed like a guerrilla ambush, and the deadline for surrender of Sh1,000 notes made painfully short.

This means demonetisation can only be effective as a tool for fighting corruption if it is one of the many implements in a long term anti-graft tool kit.

But, all said and done, hand it to Dr Njoroge. He is a genius and it is the health of Kenya's financial system, not politics, that ruled his mind as he plotted demonetisation.

He has earned the extension of his tenure. Look who's laughing now.

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