Stomping Out Corruption: Kenya’s Adoption of a New Currency

Image of a 50 shilling note in Kenya’s old currency. (Geograph)

The old Kenyan 1,000 shilling note (KSh1000), worth about $10, was completely demonetized on October 1 and has now been replaced by a new version. This comes four months after Kenyan President Uhuru Kenyatta formally announced the country’s move to a new currency in order to fight corruption, money laundering, and counterfeiting. This decision has drawn both support and criticism. 

In facilitating the move to a new currency, the Kenyan government required that Kenyans exchange their 1,000 shilling notes at banks by October 1. The government targeted this note in particular because it is the highest value note in circulation and is suspected of facilitating many illegal transactions. 

BBC Africa business reporter Georgie Ndirangu said, “Officials and well-connected businessmen in corrupt cartels are believed to hold hundreds of millions of illegally obtained shillings in cash, and withdrawing the 1,000 shilling note is expected to close many money-laundering avenues, as they have to be exchanged for the new currency.”

A Transparency International survey found 45 percent of public service users in Kenya had paid a bribe in the previous 12 months. When he was elected in 2013, Kenyatta promised to fight the rampant corruption in the country. Critics have said that Kenyatta has convicted too few corrupt actors, particularly high-profile people, so this change to a new currency is widely viewed as an effort to disprove critics. 

Other countries have set precedents for demonetization as a means of stomping out illegal activity. In 1984, Nigeria imposed a similar ban on old banknotes to try to curb corruption. India changed almost all of its hard currency in 2016 in an attempt to limit tax evasion and terrorist funding, as 90 percent of India’s transactions are in cash. The European Central Bank also withdrew bank notes of high value in order to tackle crime. 

In order to ease the transition process in Kenya, new banknotes have gradually been brought in over the past few months while smaller denominations of the old currency have not yet been demonetized. People have been able to exchange their cash at local banks, but exchanging amounts higher than five million shillings requires approval from Kenya’s central bank. Banks in neighboring Uganda and Tanzania also banned the 1,000 shilling note. To ensure that people exchanged their money, the Central Bank of Kenya (CBK) put out “a very strong, layered targeted public-awareness campaign.”

On October 1, the CBK deemed the demonetization of the banknote successful, saying that 95 percent of all notes were returned and that 3,172 exchange transactions were considered suspicious and would be investigated. Yet in August, counterfeits of the new currency were already found in circulation. 

Economist Justin Onyancha shared further doubts about the new currency, stating, “The masterminds of corruption in Kenya are still the ones who hold the new currency. I don't think the change of currency [banknotes] will reduce corruption in Kenya in any way.”

Another controversy surrounding the new currency is that of a potential constitutional violation. Kenya’s Constitution from 2010 prohibits banknotes from having individual portraits on them following a 2010 referendum on the matter. The new currency features an image of a statue of Kenya’s first president—and the current president’s father—Jomo Kenyatta. 

Well-known human rights activist Okiya Omtatah challenged the design decision in court, but the High Court ruled that it did not count as a portrait because it was an image of a statue. One man called the new banknote a “sign of respect” for the “founding father” of Kenya.

Although the transition to the new currency has been successful so far, Kenyans have yet to see how effective the new currency will be in limiting financial crimes. Some question whether it is odd to fight corruption with a currency featuring an image of the president’s father. However, many Kenyans believe the new banknote is the right step in fighting corruption in the region, regardless of the symbols involved.