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Demonetisation in Kenya: A step in fight against corruption (corruption by whom?)

Summary:
Tomorrow is 3 years of India’s demonetisation. Kenya also recently went thorough its own demonetisation but it was more gradual compared to that of India. India could deposit old notes in banks in 50 days where as in Kenya it was over 4 months (1 Jun 2019 to 30 Sep 2019). They also demonetised Kenyan Shilling 1000 notes just like INR 1000 (and Rs 500) in India. To compare, 1000 KeSh = INR 690. Unlike RBI which was totally silent on demonetisation, Kenyan central bank governor Patrick Njoroge has written an article on the demon policy: On September 30, 2019, the withdrawal of the old series Ksh.1,000 notes was successfully concluded. This demonetisation commenced on June 1, 2019, following the launch of Kenya’s new generation notes. The new notes symbolize green energy, agriculture,

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Tomorrow is 3 years of India’s demonetisation.

Kenya also recently went thorough its own demonetisation but it was more gradual compared to that of India. India could deposit old notes in banks in 50 days where as in Kenya it was over 4 months (1 Jun 2019 to 30 Sep 2019). They also demonetised Kenyan Shilling 1000 notes just like INR 1000 (and Rs 500) in India. To compare, 1000 KeSh = INR 690.

Unlike RBI which was totally silent on demonetisation, Kenyan central bank governor Patrick Njoroge has written an article on the demon policy:

On September 30, 2019, the withdrawal of the old series Ksh.1,000 notes was successfully concluded. This demonetisation commenced on June 1, 2019, following the launch of Kenya’s new generation notes. The new notes symbolize green energy, agriculture, social services, tourism and governance, that are the drivers of a Newly Reborn and Prosperous Kenya.

In deciding to withdraw the older series Ksh.1,000 notes, the Central Bank of Kenya (CBK) assessed the grave concern that these notes were being used for illicit transactions and financial flows, in Kenya and in the region. More recently, there has also been the emergence of counterfeits. Both these concerns posed a threat to the credibility of Kenyan currency, and required swift action.

In designing the demonetisation strategy, CBK examined the experiences of other countries, such as Australia, European Union, Pakistan, United Kingdom, and most recently India. All considered, the critical consideration was to balance the objective of addressing illicit financial flows and counterfeits while ensuring that the process was not disruptive to the public and the economy.

The gradual approach:

In this regard, a gradual approach over four months was preferred over an abrupt shock and awe approach. Four key elements underpinned the strategy.

First, ample public awareness was doubly important, also given that CBK had concurrently launched the New Generation currency. It was critical that Kenyans across the length and breadth of the country were made aware of the ongoing demonetization but also the features of the new currency

Second, it was important to quickly provide and maintain a wide availability of the new currency. CBK worked closely with banks to ensure a smooth rolling out of new currency across the country and its availability

Third, for the demonetization to be successful it was essential that existing measures on AntiMoney Laundering (AML) and Combatting Financing of Terrorism (CFT) be applied fully.  These measures ensured that illicit funds were filtered out, and not exchanged or enter the financial system.

Fourth, a collaborative approach with other official entities was adopted to buttress the strategy. Investigative agencies were brought on board to examine the available information for evidence of crimes.

I will not be surprised if citizens have a different and an opposite view.

Governments/central banks are not just declaring war on cash but also scare people over their holding of cash. Cash is associated with bad words such as black money, terror financing, money laundering and so on. As if all citizens engage in these activities! Most of the bad activities associated with cash are done complicit with State. Moreover, fiat cash is not something which citizens create/print but is all done by the State.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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