CBK to give audit on switch to new notes

Central Bank of Kenya Governor Patrick Njoroge holds the new notes during a recent media briefing. [File, Standard]
Central Bank of Kenya (CBK) will be under pressure to tell an eager nation whether it recovered all the 217 million pieces of the old Sh1,000 notes and netted a few crooks in the four-month demonetisation exercise.

This notwithstanding, Kenyans bade farewell to the elephant-embossed currency, which some proudly said had served them well in the last 25 years, but which quickly turned into a badge of dishonour to others.

Barely a month after CBK Governor Patrick Njoroge made the withdrawal announcement on May 1, setting off the dramatic tumble of the old note from its hitherto height of honour, Kenyans rushed to deposit Sh23 billion worth of the condemned notes into the banking system.

Dirty cash

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With 196 million pieces of the old notes lingering outside of banks as of June 2019, Kenyans will want to know what fraction of this money is dirty cash and how much has been returned into the banking system.

CBK is yet to provide data of currencies outside the banking circles for the three months to September 30.

Unveiled with fanfare in 1994, the currency bowed out of circulation with a tarnished reputation, which catalysed decision to announce its uneventful withdrawal by Njoroge in his Madaraka Day speech. He cited that the old notes were being used in “illicit financial flows in Kenya and other countries in the region.”

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President Uhuru Kenyatta’s Government is convinced that the currency has been the oil that has kept the wheels of corruption, drug dealing, terrorism and tax evasion rolling.

Not to some Kenyans who, rather innocuously, lunged at the opportunity and stitched up plans to dance and wine in the memory of Thao, as the currency is known in street parlance. The old note, they said, had served them well.

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At the stroke of midnight yesterday, all banks were expected to have informed CBK, the financial regulator, of all the old Sh1,000 notes they had collected, failure to which they would be left with truckloads of useless papers.

It is these worthless papers – the old Sh1,000 notes – that CBK will shred into pulp even as it renders all that is left outside of the banking system useless.  

“I don’t expect any surprises,” said Habil Olaka, the CEO of Kenya Bankers Association, a lobby for banks on the demonetisation exercise. He said banks would operate as normal, with little changes in opening and closing hours.

CBK said it would give a full briefing on the exercise tomorrow, with Kenyans eager to know whether those holding the now dirty cash would be nabbed.

Critics, however, insisted that CBK was on “fishing expedition.” “They (CBK) were raising unrealistic expectations that you can nab those people with dirty cash,” said Consumer Federation of Kenya Secretary-General Stephen Mutoro.

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Others have argued that ill-gotten cash was sunk into real estate and other economic activities, a situation that might have left CBK chasing a wild goose.

Mr Mutoro insisted that the demonetisation exercise was never meant to succeed in the first place, as CBK’s prescription of the problem was already flawed.

According to Mutoro, CBK failed to go after the banks, which, he said, were the root cause of the problem, as they had helped crooks to keep dirty money in their safes outside of the banking system.

Achieved objective

Gershon Ikiara, an Economics lecturer at the University of Nairobi, said despite the disappointment, the exercise had largely achieved its objective, which was to align the feature of the currency to the 2010 Constitution and address counterfeiting.

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“The main reason for demonetisation was largely to comply with the new Constitution. Many people also wanted currencies which are difficult to copy,” said Ikiara, agreeing that a lot of people might have been discouraged by the lack of high profile arrests.

The regulator says it has been keeping a vigil on all bank transactions, flagging those with suspicious activities and forwarding the names to investigating authorities. A number of bank accounts have so far been flagged, according to CBK.

There have been unconfirmed reports of last-ditch efforts by some individuals to clean the dirty money through unregulated microfinance institutions, forex bureaus, churches, pubs, car wash, and other establishments.  

By June, there were 216 million pieces of the Sh1,000 banknotes, according to new data from the CBK.    

The rest of the old banknotes – Sh50, Sh100, Sh200 and Sh500, which are not being phased out – increased in number.

About 116 million pieces of old Sh1,000 notes had been exchanged. Very few of the bank deposits had raised eyebrows, with the CBK governor saying only 24 transactions were above Sh2 million.

Barely a month after CBK governor announced the withdrawal of the Sh1,000 on May 1, Sh25 billion dramatically found its way back into the banking system as Kenyans rushed to beat the September 30 deadline.

Any changes to this figure will be known tomorrow when CBK will have a full update on the success or failure of the much-talked-about demonetisation exercise that has kept Kenyans guessing.

Industry insiders had indicated that at least 900 accounts had been flagged by the CBK for making suspicious deposits as the exchange of the old 1,000 old notes.

It could not be immediately established how much the cumulative deposits were worth, but the investigators said the amount was “significant”.

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Patrick NjorogePresident Uhuru Kenyatta