DEMONETISATION-A STEP IN THE FIGHT AGAINST CORRUPTION
By Dr. Patrick Njoroge
On September 30, 2019, the withdrawal of the old series Ksh.1,000 notes was successfully
Kenya's
concluded. This demonetisation commenced on June 1, 2019, following the launch of
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. 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. To this end, CBK with support from the banking sector and other stakeholders
traversed the country-from Nairobi to Lunga Lunga, Kisumu to Garissa, Wajir to Kakuma-
engaging all Kenyans in market places, barazas, streets, and bank branches. A multi-channel
campaign was also executed, with over 15,000 advertisements, coverage in social media,
television, newspapers, and over 80 mainstream and vernacular radio stations.
it was important to quickly provide and maintain a wide availability of the new
Second,
currency. CBK worked closely with banks to ensure a smooth rolling out of new currency across
the country and its availability. CBK's immediate support to banks and other players was needed
to recalibrate the verification and note-counting machines, ATMs, and parking payment
machines so as deal with the new notes. Special emphasis was placed on the far-flung areas, in
the northern and southern parts of the country, cognizant of the heavy use of cash in those
regions. To identify any emerging concerns and facilitate their resolution, a robust feedback
mechanism including some strategic surveys was also deployed.
for the demonetization to be successful it was essential that existing measures on
Third,
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. Commercial banks, Forex bureaus, and payment service providers (PSP) have
over the last few years strengthened their AML/CFT screening, which proved a strong
foundation for the demonetisation. Additionally, reporting and monitoring was scaled up, with
positive results-during this period CBK conducted 15 targeted inspections on financial
institutions, and over 3,000 Suspicious Transaction Reports (STRs) were reported for further
investigation.
a collaborative approach with other official entities was adopted to buttress the strategy.
Fourth,
Investigative agencies were brought on board to examine the available information for evidence
of crimes. Other central banks were also roped in to ensure that escape of counterfeiters and
perpetrators of illicit funds through those jurisdictions was thwarted. This approach is akin to an
army overwhelming the enemy by attacking on all flanks at once.
As the sun set on demonetization on September 30, 2019, inflation, the exchange rate and other
key macroeconomic indicators remained stable. There were no last minute panic queues outside
banking halls-the awareness campaign had been effective and ordinary Kenyans had exchanged
their notes in good time. At midnight when the operation was concluded, old series Ksh.1,000
notes valued at Ksh.7.4 billion had not been exchanged and became worthless.
Demonetisation marks a single step in the fight against illicit finance and corruption more
generally. Sustained efforts are needed to deliver victory. The strong AML/CFT filters that were
applied will continue to be deployed. The information already gathered will also support further
investigations by law enforcement agencies. But most importantly, we have created a launch pad
for progress towards using less cash for transactions, as we increasingly embrace the readily
available mobile and electronic channels. This will make it harder to launder ill-gotten funds, and
for cash-based corruption to survive.
The successful conclusion of demonetization is a testament to careful preparation by CBK and
close collaboration with commercial banks and other financial institutions, government agencies,
other central banks, and most importantly, the public. We owe Kenya a new beginning, a Newly
Reborn and Prosperous Kenya, building an economy devoid of corruption. This is a call for each
and every Kenyan.
The writer is the Governor of the Central Bank of Kenya