This archive report was first published on 29 November 2019.
The Central Bank of Kenya's (CBK) decision to retire old Sh1,000 banknotes has led to a significant drop in cash circulation in Kenya, with the amount of cash in Kenyans' pockets hitting a six-year low in September.
According to CBK data, the cash circulating outside banks dropped to Sh157.7 billion in September, the lowest since April 2014. This represents a significant drop of Sh65 billion in the four months leading up to September.
Analysts have expressed puzzlement over the drop, given that CBK had announced in October that notes worth Sh7.4 billion were not exchanged, rendering the cash invalid. This has raised suspicions that the billions of shillings in unexplained wealth were tied to illicit activities.
George Bodo, a director at Callstreet Investor Relations, questioned CBK's announcement on money supply after the withdrawal of the old Sh1,000 notes. He argued that CBK had announced the withdrawal of older Sh1,000 notes worth Sh217 billion on June 1 and revealed that it had pumped Sh149.6 billion of the new currency in the four months to the end of September, leaving a balance of Sh67 billion.
Prof XN Iraki, an economist at the University of Nairobi, suggested that the demonetisation process could have reduced money outside the banks, but also pointed out that the government's failure to pay suppliers could have removed lots of money from people's pockets or banks.
Business owners have accused both the national and county governments of delaying payments to suppliers worth more than Sh150 billion, which has hurt businesses that trade with the government.
Companies are struggling with reduced sales and profits in a soft economy that has persisted since 2017, when Kenya went through a bruising General Election followed by a repeat presidential election.
