Demonetisation a boon to fight against corruption
By Dr Patrick Njoroge
On September 30, the withdrawal of the old series Sh1,000 notes was successfully concluded. The demonetisation commenced on June 1, following the launch of Kenya’s new generation notes. The new notes symbolise green energy, agriculture, social services, tourism and governance, that are the drivers of a newly-reborn and prosperous Kenya.
In deciding to withdraw the old Sh1,000 notes, the Central Bank of Kenya (CBK) assessed the grave concern that the notes were being used for illicit transactions and financial flows, in the country and in the region. There has also been the emergence of counterfeits. Both these concerns posed a threat to the credibility of Kenyan currency, and required swift action.
In designing the demonetisation strategy, CBK examined the experiences of other countries, such as Australia, European Union, Pakistan, United Kingdom, and most recently India. All considered, the critical consideration was to balance the objective of addressing illicit financial flows and counterfeits while ensuring the process was not disruptive to the economy. In this regard, a gradual approach over four months was preferred over an abrupt shock and awe approach. Four key elements underpinned the strategy.
First, ample public awareness was important. It was critical that Kenyans across the country were made aware of the ongoing demonetisation as well as the features of the new currency. To this end, CBK with support from the banking sector and other stakeholders traversed the country—from Nairobi to Lunga Lunga, Kisumu to Garissa, Wajir to Kakuma— engaging all Kenyans in market places, barazas, streets, and bank branches.
A multi-channel campaign was also executed, with over 15,000 advertisements and coverage in the mainstream and social media.
Second, it was important to quickly provide and maintain a wide availability of the new currency. CBK worked closely with banks to ensure a smooth rolling out of new currency. CBK’s immediate support to banks and other players was needed to recalibrate the verification and note-counting machines, ATMs, and parking payment machines so as deal with the new notes. Special emphasis was placed on the far-flung areas, in the northern and southern parts of the country, cognisant of the heavy use of cash in those regions.
To identify any emerging concerns, a robust feedback mechanism was also deployed.
Third, for the demonetisation to be successful, it was essential that existing measures on Anti- Money Laundering (AML) and Combatting Financing of Terrorism (CFT) be applied fully. These measures ensured illicit funds were filtered out, and not exchanged or enter the financial system. Commercial banks, Forex bureaus, and payment service providers have over the last few years strengthened their AML/CFT screening, which proved a strong foundation for the demonetisation. Additionally, reporting and monitoring was scaled up, with positive results—during this period CBK conducted 15 targeted inspections on financial institutions, and over 3,000 Suspicious Transaction Reports were reported for further investigation.
Fourth, a collaborative approach with other official entities was adopted to buttress the strategy. Investigative agencies were brought on board to examine the available information for evidence of crimes. Other central banks were also roped in to ensure that escape of counterfeiters and perpetrators of illicit funds through those jurisdictions was thwarted. This approach is akin to an army overwhelming the enemy by attacking on all flanks at once.
As the sun set on demonetisation, inflation, the exchange rate and other key macroeconomic indicators remained stable.
Demonetisation marks a single step in the fight against illicit finance and corruption more generally. Sustained efforts are needed to deliver victory. The strong AML/CFT filters that were applied will continue to be deployed.
We owe Kenya a new beginning—building an economy devoid of corruption. This is a call for each and every Kenyan.
—The writer is the Governor of the Central Bank of Kenya