Within a month after Central Bank of Kenya (CBK) Governor Patrick Njoroge announced plans to phase out the old Sh1,000 banknotes, a massive Sh25 billion resurfaced into circulation.

This saw money outside of banks — in coins and notes — reduce by nearly one-tenth from Sh222 billion to Sh196 billion, according to the latest data from the CBK.
The unusual 9.8 per cent drop in money outside of banks is the first negative annual growth since CBK started making this data public in 2015.

The financial regulator acknowledges that some of the Sh196 billion could be money that Kenyans are using to buy goods and services with some in people’s pockets, but a good chunk of it could also be dirty money that has been kept out of circulation.
In his Madaraka Day Speech on June 1, Dr Njoroge noted that his team has since reached the conclusion that the Sh1,000 notes were being used for illicit financial flows in the country and region.
“To deal conclusively with these concerns, all the older one thousand shillings series shall be withdrawn. By a Gazette Notice dated May 31, 2019, all persons have until October 1, 2019, to exchange those notes, after which the older one thousand shillings banknotes will cease to be legal tender,” said Dr Njoroge.
Thirty days after he had made the speech, currency outside of banks dropped by almost a tenth in what is a pointer to desperation by Kenyans — some who had hidden their hard-earned and for some, illicit money in their homes — to beat the September 30 deadline.
The other banknotes Sh50, Sh100, Sh200 and Sh500 old notes, will, however, remain as legal tender despite new currency being introduced under these lots.

The introduction of the new currency has generated mixed reactions even as some opposed because of the sculpture of the country’s first president, which they have insisted is a portrait, contrary to the constitutional requirement that no person’s photo should feature in the new generation currency.

Return of the cash into banks is given credence by a corresponding jump of money in bank accounts which increased by Sh22 billion. With the foreign currency deposits also experiencing a huge jump, it could explain where the missing Sh3 billion could have gone.

It is going to be interesting to see what the July and August data, which is yet to be compiled, will reveal even as CBK governor goes on a campaign trail urging Kenyans to return the old Sh1,000 notes for replacement.