The Ghanaian government has taken further steps to stem inflation, and also bring its monetary policy in line with fiscal policy by the introduction of new bank notes into the system. The new bank notes according to the Bank of Ghana will be introduced into the system by next week.
The denominations introduced are the GH¢100 and the GH¢200 notes which will be infused into the country’s currency denomination mix. Equally introduced is the GH¢2 coins. According to the Governor of the Bank of Ghana, Dr. Ernest Addison, the apex bank is taking the decision of introducing the new notes to complement the existing series to ensure customer convenience and bring about efficiency in the printing of currency to generate savings for the country.
He added that these new higher value denominations will only restore partially the dollar value of the higher denomination GH¢200 to about US$40, not quite close to levels in 2007, but high enough to significantly reduce the deadweight burden and high transaction cost in making high-value purchases in a cash-based economy like Ghana.
Speaking on the development, the Deputy Governor of the Bank Dr Maxwell Opoku Afari said that the systems are being calibrated and the banks will start getting these species moved to their various branches starting from next week Monday. He added that it will be demand-based as to how many people want to demand that because it is mostly going to store value and also for high-value transactions.
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Kenya ’s Central Bank is issuing a serious last warning: no foreign bank will agree to take the old Kenyan Sh, 1000 notes. Hence, holders of such will have to bring them back to Kenya physically for conversion to the new currency.
”CBK Is Not Providing Any New Generation Bank Notes To Lenders Outside The Country”
The CBK boss said the regulator is also not providing any new generation bank notes to lenders outside the country to facilitate the conversion, arguing that this would defeat the goal of combating illicit money flows that have informed the move to demonetize the old Sh,1000 currency.
‘‘Anyone holding the old Sh1,000 bank notes outside the country will have to bring them back to exchange with the new currency before the October 1 deadline, Central Bank of Kenya,’’ (CBK) Governor Patrick Njoroge said.
CBK ruled out allowing any form of conversion of the old notes outside Kenya’s borders, indicating that the regulator had notified all foreign banks to stop recognizing the legacy currency.
“If you have the Kenyan currency and you happen to be outside the country, there is only one way to get value for it before October 1. You have to take a trip here and go through the procedures outlined in the gazette notice and subsequent releases,” said Dr Njoroge at a press briefing yesterday.
“You cannot convert it to any other currency out there, since this would defeat the process of demonetisation.”
Those coming into Kenya to convert their notes will follow the same procedures laid out for locals. Converting between Sh1 million and Sh5 million is happening at all commercial bank branches, where customers are expected to make declarations on the source of their cash.
Persons exchanging more than Sh5 million will need to get an endorsement from CBK, as will those exchanging more than Sh1 million but do not have bank accounts.
Dr. Njoroge added that the net has been cast wider to forestall efforts to clean dirty money in other jurisdictions that carry out significant financial transactions with Kenya.
Both the Bank of Uganda and the Bank of Tanzania Issued Notices Earlier This Month Freezing the Conversion of the old Kenyan Notes in Their Banks
The Kenyan shilling is commonly used to transact goods and services in neighboring countries, especially now that East African Community rules allow free movement of people and goods across regional borders.
Anyone holding the old Sh1,000 banknotes outside the country will have to bring them back to exchange with the new currency before the October 1 deadline.
The shillings find their way back home through the same trade routes, as well as official currency repatriation mechanisms between the central banks of the respective countries in the bloc.
The CBK has ruled out making an extension to the October 1 deadline for the demonetization process, saying that doing so would provide those looking to get rid of illicit funds a loophole to do so.
The new notes contain features that are identifiable by touch to accommodate the visually impaired, which cannot be put on a polymer note.
Taking into account the rough handling of Kenyan banknotes that produces rapid wear and tear, CBK applied varnish on the notes that will allow them three to five years of usage, 30 percent longer than the older notes they are replacing.
Polymer notes on average last two-and-a-half times longer than cotton paper, but are twice as expensive.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
As you would expect, the first implication of the Kenyan new currency policy (which is that the country’s currency would be replaced with a new generation of banknotes and that Kenyans must return their 1,000 shillings ($10; £8) notes to banks by 1 October, in a bid to fight money laundering, counterfeits, and corruption) is that many businesses would go in for it.
The new currency notes will be in Sh50, Sh100, Sh200, Sh500 and Sh1000 denominations. Although Kenya’s Central Bank Governor Prof Patrick Njoroge said the Sh50, Sh100, Sh200 and Sh500 notes will be phased out slowly, he has however insisted that:
“The emergence of counterfeits has become a great concern. All the Sh1000 notes were withdrawn by a gazette notice on Friday. Those in possession [of the bank notes] have until October 31, 2019 to release them,” said Prof Njoroge who urged Kenyans to have the notes changed.
Below are the implications of the change in this currency policy on Kenyan businesses.
By November This Year, All Those In Possession of The Old Ksh1000 Notes Will Not Be Able To Use Them
This is directive of the Central Bank of Kenya. Mr. Njoroge said the Central Bank of Kenya is giving all Kenyans in possession of the old Ksh1000 a four-month transition period in order to allow them enough time to change the old currency within their possession.
For Kenyan exchanging less than 5m shillings, they would be able to do so at their local bank but any amounts higher than that will need approval from Kenya’s central bank. Those are to seek approval from Kenya’s Central Bank include those without bank accounts and with over Ksh.1million of the old currency.
Another strategy would be to block all ways of exploiting the new policy. The bank is already in talks with managers of foreign-exchange bureaux and money-remittance providers to put in place controls to prevent illicit financial flows.
There is an alleged feeling of desperation among those suspected to be hoarding money acquired illegally and who are hence unable to bank it as they cannot openly declare its source. Such individuals are faced with the challenge of losing the money when it is devalued on 1st October as Kenya officially moves on to the new currency as is dictated by the 2010 Constitution, reports Kenya’s Investment Company Soko Directory
Commercial banks are expected to obtain confirmations from customers on the nature of their businesses that generate the respective large cash transactions.
Kenyan Shillings Can Be Used Once In A While In Uganda and Tanzania, But This Is No Longer Going To Be The Case
With this new policy, Kenyan businesses using Kenyan shillings to transact or do foreign exchange businesses in Uganda and Tanzania will not be able to do so again. Mr. Ngoroge has communicated to banks across the East African region where Kenyan shillings is often used as a legal tender to ensure that Kenya’s illegal money did not get exchanged in their countries. To this effect, the Bank of Uganda, Uganda’s highest bank has mandated all banks in Uganda to stop accepting Kenyan currency at the counter. A statement from Uganda’s Central Bank said the move is aimed at boosting Kenya’s fight against counterfeits and illicit flows.
“The Central Bank of Kenya has informed Bank of Uganda that they have issued a new series of Kenya banknotes effective May 31, 2019…..in light of new developments, BOU will not accept Kenya shillings at its counters with immediate effect,” the notice reads.
The memo also said the new currency is only available in Kenyan banks. The bank further directed all commercial banks in Uganda to subject all cash flows from and into Kenya to due diligence. The Tanzanian central bank has also stated the same.
With the new move, expect previously hoarded cash to be collected back for redistribution. There are a total of 217.6 million pieces of 1,000 shillings in circulation in Kenya according to a statement by the Central Bank of Kenya (CBK).
The Kenya Association of Manufacturers is leading the pack of those Kenyans who see opportunity from this. KAM chairman, Sachen Gudka has been quoted as saying:
“This change is likely to redirect monies that are presently hoarded and funneled into funding illicit economic activities into the formal banking and lending structures to finance the production of real goods and services.”
He also believed that the move will give citizens a better purchasing power and push for higher demand and supply for local products, and as such boost positive legit businesses in the country.
There Is A Big Question On Whether The Design Of The New Currency Is Constitutional
Article 231 (4) of the Constitution of Kenya states that “Notes and coins issued by the Central Bank of Kenya may bear images that depict or symbolize Kenya or an aspect of Kenya but shall not bear a portrait of any individual.”
Activist Okiya Omtatah has since gone to court to block the new currency over the inclusion of the portrait of Mzee Jomo Kenyatta, contrary to the requirement of the constitution.
The Chief Justice David Maraga has been asked by the High Court to constitute a 3-judge bench to deliberate on the matter.
Nigeria introduced a similar ban on old notes in 1984 in an attempt to crack down on corruption, as did Ghana in 1982 to help with tax evasion.
This may be a big-time signal for businesses in Kenya to consider storing their cash in foreign domiciliary accounts.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
