Demonetisation plan by the state will boost economy

Tuesday, September 24th, 2019 00:00 |
Money. Photo/File

In less than a week, the old Sh1,000 banknote will cease to be legal tender, thus those still holding onto the old notes will be left with valueless paper.

The countdown to demonetisation of the Sh1,000, which kicked off on June 1, has a deadline of  September 30. Other notes—Sh50, Sh100, Sh200 and Sh500—will be phased out gradually.

Unfortunately,  although the Central Bank (CBK) has done its best to sensitise the public on the phase-out deadline, the typical Kenyan mentality of last-minute rush that usually predisposes many to exploitation by unscrupulous individuals is already being felt. 

For instance, at the weekend, media reports indicated a man was robbed of Sh15 million as he tried to help a politician to change old banknotes into US dollars.

And the anxiety is beginning to manifest itself as some businesses begin to reject transactions using the old Sh1,000 note.

It is not only disturbing, but criminal to  turn away those make payments for goods and services using the note even before the deadline lapses.

So brazen are some of the traders that they have actually put up notices to warn customers they are not dealing with old notes.

While the move is a precautionary measure by businesses trying to avoid having demonetised notes on their hands as CBK’s September 30 deadline approaches, their self- proclaimed deadlines are making it harder for the public to exchange the notes.

This means that many people will either be stuck with the old notes or opt to queue in the banks to exchange them which could hurt the economy.

Claims that the demonitisation was meant to deal with people who had bunkers full of illicit cash are not helping matters. 

As we await the final audit of the process, indications are that there was an imminent redemption-—some hedging might have been conducted going by the pressure on the shilling in the last three months.

In the long run, this process is expected to boost the economy because it will force more cash into the formal system, giving the dwindling economic activities the much-needed shot in the arm.

It will also mop up some counterfeit cash to restore credibility in Kenya’s currency.

But this has to be managed well to avoid jolting the economy with unintended consequences, thus hurting an already slow economy.

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