CBK collects half of Sh1,000 notes ahead of deadline
Crime busters at Directorate of Criminal Investigations (DCI) are probing cases of suspicious cash transactions that have been flagged by banks during the ongoing demonetisation of Sh1,000 note.
Central Bank Governor Patrick Njoroge says some of those cases are of people who wanted to change more than Sh5 million to new currency notes.
“We have shared the information we have gathered so far with the DCI for further investigations. Our role as the regulator is to work with the investigating agencies to ensure that we achieve our goal,” Dr Njoroge said on Thursday night on Citizen TV.
He said investigations on people holding illicit money would continue even after the old notes are phased out after September 30.
So far, he said, banks have collected more than 100 million pieces of old Sh1,000 notes out 217 million pieces that were in circulation when the demonetisation was announced.
“We expect to collect more notes as the deadline nears because most people like doing things the last minute,” he said.
However, Dr Njoroge ruled out 100 percent success of the demonetisation, saying some have “laundered the illicit proceeds in properties in the country and abroad.”
CBK caught the country by surprise on Madaraka Day when it announced that it was withdrawing the Sh1,000 notes in a bid to counter counterfeits, corruption and money laundering.
During the demonetisation, individuals exchanging less than Sh1 million of the old notes and non-account holders were instructed to exchange them through the currency centres, CBK branches and commercial banks.
Bank customers and non-account holders having an excess of Sh5 million are required to get Central Bank’s approval.
The old generation bank notes will be worthless papers from October 1, 2019.
CBK has said it is working with forex bureaus, payment service providers, money remittance providers, investigative agencies and other financial service providers to ensure all due procedures are followed.
Kenya is not the first country to walk down this path.
India scrapped 500 and 1000-rupee bank notes in 2016 to flush out tax evaders.
However, this did not achieve the desired goal as 99 percent of the money still got back into the system.
A debt-ridden Nigeria introduced new currency and banned the old notes in 1984, under the Muhammadu Buhari government.
But this caused chaos and was blamed for the inflation that followed and crashed the economy.
Ghana attempted a similar move in 1982 when it ditched its 50 cedis note to deal with rampant tax evasion and empty excess liquidity.
It had the downside of fuelling a currency black market.
North Korea tried this in 2010 but ended up leaving citizens with no food and shelter after Kim-Jong ll knocked off two zeros from the face value of the old currency in order to kick out the black market.
There have been at least five success stories where the exercise worked for the economy and resulted in the intended outcomes.
They are Pakistan (2016), the UK (2002), Australia (1996), and the EU (2002).
Zimbabwe attempted in 2015 and succeeded having gone for the US dollar.