Roll out policies that can entrench long term growth goals

During this year’s Madaraka Day celebrations, the Governor of the Central Bank of Kenya (CBK) pronounced a raft of measures to combat corruption, money laundering, counterfeits and tax evasion through the introduction of the new generation currency notes to circulation besides phasing out Sh1,000 old generation notes by October 1.

This policy action is an attempt to guide human behaviour in wealth acquisition and control. Administering the 'withdrawal therapy' of the Sh1,000 shilling note from the market creates uncertainty and instability in the economy locally and beyond. Lately, reacting to this policy action, the central banks of Uganda and Tanzania responded by issuing precautionary guidelines in handling the new generation Kenyan currency notes in their respective countries. While we ponder the speed in which our two neighbours adopted such drastic measures, the feeling locally is no different.

From the onset, there has been poor co-ordination and execution of public education which has left a majority of the populace insufficiently empowered. Furthermore, during transition periods like the one we are in, the risk of falling prey to counterfeits and abuse is high.

That is why the public should be more vigilant while trading with the new currency notes and especially where one is not conversant with its security features.

Notably, we can equally pick some lessons from the November 8, 2016 demonetisation programme in India.

India intended to achieve the following objectives; fight black money, corruption, and curb terror funding.

Two years later after implementation led to thousands of job losses, hundreds of industries closed and thousands of SMEs shut down beside a 1.5 percent drop in Gross Domestic Product.

The Kenyan situation will be no different, with the possibility of causalities in the informal sector that runs independently of the banking establishments. To force submission to the regulatory framework of the banking system will not only have far-reaching consequences but also will trigger panic spending and market disruptions.

Apparently, over the years, SMEs have run a successful saving and financing model that has promoted economic growth, job creation, productivity, and investment.

The informal financing model mainly groups and saccos are deeply entrenched into SMEs systems and has supported them in wealth creation running into billions.

Capital grown under the groups saving and lending platforms should be protected if the growth momentum in SMEs is to be maintained. After all, stringent banking terms and regulations that were unfriendly to the SMEs occasioned the establishment of these informal financing models.

In spite of the demonetisation efforts in India, ill-gotten monies got its way back into circulation beating the original purpose of that policy action. Regrettably, no measures are in place to address a resurgence of factors that informed the June 1 policy action. Money supply in any given economy is a key variable that guides microeconomic policies. A good policy statement is one that promotes market dynamics.

The writer is a policy analyst.