The average monthly value of Sh1,000 notes in circulation has risen by Sh21.2 billion amid the prevailing high cost of living ahead of the August General Election.
Central Bank of Kenya (CBK) data shows 235.211 million pieces of Sh1,000 notes were circulating in the economy monthly in the year to December 2021, compared with 214.005 million pieces in the previous year.
It is also in comparison to the 2019 average of 196.192 million pieces a month.
The average monthly value of Sh1,000 in circulation has as a result hit Sh235.2 billion—being a Sh21.2 billion jump from Sh214 billion in the previous year, defying the general feeling of tough economic times.
The Sh21.2 billion jump in the average monthly circulation of Sh1,000 notes is the largest ever to be seen year-on-year and dwarfs the previous record of 2007, another election year when the high-value notes jumped by Sh20.5 billion.
CBK does not offer an explanation for changes in currency circulations, but the trends in its data from 1998 show the spikes in average monthly circulations have been concentrated around election years. The Independent Electoral and Boundaries Commission (IEBC) is yet to officially open the campaign window for the August polls, but politicians have been traversing the country for the better part of the last year to woo voters.
The handshake politics and the aborted Building Bridges Initiative (BBI) that was to culminate in a referendum are some of the events that have thrown the country into election mode.
Analysis by Standard Business show, for instance, that in 2007, an additional Sh20.45 billion packaged in Sh1,000 notes was added to the economy. This was the sharpest ever jump at the time, overtaking the 2002 jump of Sh10.64 billion when the late former President Mwai Kibaki defeated Uhuru Kenyatta.
The value of Sh1,000 notes in circulation fell by Sh2.67 billion the following year as election fever subsided, only to pick by Sh20.45 billion in 2007 when Kenya held another general election.
The pace of adding high-value notes would again slow the following year and dip by Sh4.86 billion in 2009, only to rise by Sh12.14 billion in 2010—the year of the referendum that gave birth to the current constitution.
The spike continued in 2011, with Sh19.2 billion worth of Sh1,000 banknotes added to the economy—the only sharp rise in a non-election year, alongside the Sh17.6 billion of 2015.
In 2013, the year President Kenyatta’s Jubilee administration was voted into office, more Sh1,000 notes worth Sh17.1 billion were added to the economy—marking another spike.
The trend was replicated in the 2017 polls where an additional Sh15.3 billion came into circulation before a decline of Sh16.5 billion in 2019.
A bank executive in one of the top tier banks told Standard Business that the latest increase in popularity of Sh1,000 notes could also point to the erosion of value in low currency notes as the cost of living goes through the roof.
“CBK usually releases more notes when demand increases. So when you find more people demanding more Sh1,000 notes, CBK responds by releasing more,” said the bank CEO who did not want to be named.
“Looking at how the market is now in terms of the cost of living, the most common currency of exchange is the Sh1,000 note. Low-value notes, say Sh50, affords less even in the village economy and are used more as change.”
Regulators in markets such as India, where a higher than average increase in banknotes in circulation was witnessed last year, linked this to the precautionary holding of cash as a store of wealth in the pandemic period.
High-value notes have been linked to graft in many markets, including Kenya since they are relatively convenient to store in the house for those seeking to remain under the radar of financial system checks.
CBK in 2019 demonetised old Sh1,000 notes and replaced them with new ones in an exercise that saw Sh7.4 billion rendered worthless.
“A significant proportion of this amount would represent cash that was held by individuals who were unable or unwilling to subject themselves to the robust checks in place,” said the regulator at the end of the process.