This archive report was first published on 8 July 2019.
Kenya's New Currency: A Double-Edged Sword for Businesses ¶
As the Central Bank of Kenya's deadline for the demonetization of the old Sh1,000 notes approaches, businesses and individuals are bracing themselves for the impact on their finances.
On May 31, Central Bank of Kenya Governor Patrick Njoroge announced the move, which aims to remove the old notes from circulation by October 1. This means that the old Sh1,000 notes will no longer be considered as having any legal tender and will be null and void after the deadline.
The introduction of the new currency is expected to have a significant impact on the financial system, with some experts predicting increased consumption of durable goods, influx into the capital markets, and demand for foreign currency.
However, the move has also raised concerns about the potential for increased corruption and the risk of people trying to hide or get their monies into the system through illegal means.
As the deadline approaches, businesses and individuals are advised to provide valid and corroborating evidence supporting the sources of their funds and the purpose of the money before it can be accepted and changed.
With the deadline quickly catching up, inflation increase is quite inevitable, especially as the deadline approaches. Current statistics show that the economy grew by 6.3 percent in 2018 while inflation decreased to 4.7 percent owing to strong macroeconomic factors.
Ultimately, the success of the Central Bank's move will depend on its ability to complement other social reforms and address the root causes of corruption in Kenya.
By Duncan Gor, founder of ETF Solutions.
