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CBK raises concern over wheat being bought with 'dirty money'

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The Central Bank of Kenya (CBK) says it is concerned about the spike in wheat cash buyers. FILE PHOTO | NMG

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Summary

  • Kenyans have until September 30 to discard the old Sh1000 notes.
  • India scrapped 500 and 1,000-rupee bank notes in 2016 to flush out tax evaders.
  • But this did not get the desired effects as 99 per cent of the money still got back into the system.

People with dirty cash could be buying wheat in Narok County to clean it up as the deadline approaches.

The Central Bank of Kenya (CBK) says it is concerned about the spike in wheat cash buyers.

The CBK on Tuesday maintained there will be no extension of the September 30 deadline for the phase-out of the Sh1000 note.

New notes

Kenyans who will not have converted, CBK Governor Patrick Njoroge said, will lose out.

Dr Njoroge also said the CBK is working with the judiciary to ensure that prisoners who deposited old notes are allowed to exchange.

Also at risk are the millions in old notes that are being held as exhibits by various courts across the country.

Dr Njoroge said if judiciary officials do not exchange the money, it will be worthless after next week.

Kenyans have until September 30 to discard the old Sh1000 notes. But the Sh50, Sh100, Sh200 and Sh500 notes will be phased out slowly.

The immediate phase-out of the Sh1000 note, according to Dr Njoroge, will help in dealing with cases of counterfeits and money laudering, which has impacted the economy negatively.

Kenya is not the first country to walk down this path. India scrapped 500 and 1,000-rupee bank notes in 2016 to flush out tax evaders. However, this did not get the desired effects as 99 per cent of the money still got back into the system.

Caused chaos

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.

These include, Pakistan (2016), the UK (2002), Australia (1996), and the EU (2002). Zimbabwe attempted in 2015 and succeeded having gone for the US dollar.