This archive report was first published on 20 July 2019.
Kenyan banks are facing a new challenge as they struggle to provide customers with new currency, following a reported shortage of new notes.
According to a senior banking official, lenders are working around the clock to address the issue, which has been exacerbated by the Central Bank of Kenya's (CBK) limited supply of new currency reserves.
On June 6, the CBK confirmed receipt of the first batch of new notes to banks, but assurances on circulation have since deteriorated.
Media reports at the end of last week first highlighted the prevailing new currency shortage, based on scrutiny of day-to-day banking transactions and observations from consumers of financial services.
As a result, a considerable number of individual automated teller machines (ATMs) in banking halls remained out of order at the start of the week, indicating ongoing repairs.
The banking sector has begun to express its disgruntlement with the regulator, with lenders facing hard questions from both the public and the press.
"The CBK has thrown the monkey at our door! Central Bank has remained silent even when the ball of printing new money and its distribution lies on their court," a banking industry player said on condition of anonymity.
CBK Governor Patrick Njoroge, who had been providing regular updates on the demonetization process, has not issued a statement on the issue.
He turned down questions from journalists during his last public appearance at the Afro-Asia Fintech Festival this week.
The silence of the reserve bank has opened the floodgates to all forms of speculation, with the majority of recorded scrutiny pointing to a decisive and deliberate cut to the circulation of new money.
Sources claim that the CBK might be squeezing out holders of the old series Ksh.1000 notes, which are to be removed from circulation by October 1, 2019, by denying them new notes until the very end.
Experts, however, reckon that the CBK may be shooting itself in the foot by allowing the continued flow of undesired notes in the financial system.
Further, sector analysts are wary of the risks of demonetization efforts by the State, as was represented in India's similar move in 2016.
India's demonetization had aimed to remove its high-valued 500 and 1000 rupee notes as a remedy to netting black money and fakes, but the drastic measure failed catastrophically.
According to a report released by the Reserve Bank of India (RBI) last year, only 0.7 percent of the notes in question left the system, with the majority (99 percent) being sieved through State checks to re-emerge back into the system as clean float.
Moreover, India's government tinkered with the rules to the changeover, denying many of its citizens the opportunity to conform to the new legal tender, resulting in liquidity chaos, hyperinflation, the loss of over 1.5 million jobs, and a hit on Gross Domestic Product (GDP) by a notable two percent.
In the Kenyan situation, the CBK seems to have no tabs on the share of illicit flows represented by the estimated 217.6 million Ksh. 1000 notes in circulation, further hiking up fears of an impending policy failure.
CBK is likely to break silence on the issue and its observed monetary policy effects when Governor Patrick Njoroge addresses a post-monetary policy committee (MPC) media briefing next Thursday.
