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 All the Sh1000 notes were withdrawn by a gazette notice on Friday.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.

The Change Will Most Likely Make More Money Available To Businesses. The Best Time To Borrow May Be Now

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.

But the CBK governor has said that design was well within the Constitution’s directions. 

Countries That Once Toed Kenya’s Footsteps

In 2016, India changed almost all of its cash overnight, which some critics claim caused long-term financial problems. The Indian government said it was a necessary move to tackle tax evasion and terrorism funding, and in a country where 90% of transactions are in cash, to move towards a cashless society.

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.

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