At least Sh25 billion have been returned by Kenyans to banks following a directive by Central Bank of Kenya time phase out Sh1,000 notes.
This saw money outside of banks — in coins and notes — reduce by nearly one-tenth from Sh222 billion to Sh196 billion, according to the latest data from the CBK.
The unusual 9.8 per cent drop in money outside of banks is the first negative annual growth since CBK started making this data public in 2015.
The financial regulator acknowledges that some of the Sh196 billion could be money that Kenyans are using to buy goods and services with some in people’s pockets, but a good chunk of it could also be dirty money that has been kept out of circulation.
In what was seen as a strategy to fight war against corruption, Central Bank of Kenya boss Patrick Njoroge said in June that Sh1,000 notes will cease to be legal tender from October.
President Uhuru Kenyatta, who had invited Njoroge to issue a statement at Narok stadium, welcomed the directive, arguing that it was long overdue.
“To deal conclusively with these concerns, all the older one thousand shillings series shall be withdrawn. By a Gazette Notice dated May 31, 2019, all persons have until October 1, 2019, to exchange those notes, after which the older one thousand shillings banknotes will cease to be legal tender,” said Dr Njoroge.
Reginald Kadzutu, a financial analyst, agreed that this is a strong indication that people are trying to beat the September 30 deadline.
Mr Kadzutu noted that while the money might now be available for use by consumers, there are also fears of a spike in prices of goods and service in the coming months as Kenyans rush to spend this excess cash.
“This money is now clean money and people might try to be prudent in using it, so they will buy assets,” said Kadzutu.
More money is expected to be returned with CBK launching a sensitisation campaign across the country which is expected to go on for the next 40 days.