This archive report was first published on 5 October 2019.
Kenya's Demonetization Success: Unaccounted for Cash Remains Out of Circulation ¶
Published on October 5, 2019
The Central Bank of Kenya's (CBK) demonetization process has been hailed as a success, with unaccounted for cash remaining out of circulation. The process, which involved the withdrawal of Ksh.1000 notes, resulted in the return of notes worth Ksh.209.7 billion, leaving a significant amount of unaccounted for cash.
According to CBK Governor Patrick Njoroge, the success of the process can be attributed to the tight-lidded scrutiny of transactions over the four-month window. The CBK conducted 15 targeted on-site inspections and flagged down 3172 transactions, with some transactions being rejected due to suspicions of illicit activity.
Research analyst Titus Maina of the Kenya Business Guide noted that the number of returned notes has not increased, indicating that the illicit money never found its way into the system. This is in line with CBK's own account, which highlighted the planning and preparation that went into the process.
CBK Governor Patrick Njoroge emphasized the importance of planning and preparation, stating, 'We went the Eliud Kipchoge way; plan, prepare deploy.' He also noted that the banks were never off the hook in their handling of transactions and bore a responsibility.
Technical Tax Advisor at the Tax Justice Network Africa expressed concerns that some of the notes sieved off the financial system may have represented legitimate flows. Economist Edward Kusewa also laid down the importance of further disclosures by financial institutions on the records of transactions made during the period to reach a decisive measure of purged amounts.
The demonetization process has equipped the CBK with a greater insider knowledge on cash transactions in the country, allowing the State to tighten its already established Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework. Commercial banks and other financial institutions were required to submit weekly reports on transactions, a practice that will now be permanent.
