On November 8, 2016, just as Donald Trump was about to stun the world with his US presidential election victory, Indian Prime Minister Narendra Modi made a surprise announcement that the government would invalidate 500- and 1,000-rupee notes. This was to take effect at midnight.
With a single stroke of the pen, Modi thought he had choked the black money market. Post-haste, banks and ATMs were a traffic snarl of people depositing and demanding cash.
In a gazette notice of Friday, May 31, Central Bank of Kenya Governor Patrick Njoroge announced that the current Sh1,000 banknotes would cease to be legal tender on October 1.
Launching new notes, he said that was meant to curb illicit financial flows and fake currency.
Dr Njoroge gave no more details. However, this move is meant to mop up a whopping Sh217 billion in circulation.
The fiscal and monetary policies should not be seen to be on trial and error.
We must put in place structures and frameworks and independent institutions to perform that task.
The way the ‘bad’ people obtained and managed to keep these Sh1,000 notes is the same way they will obtain the new currency, and the cycle continues. Brain power should be seen more than muscle.
Demonetisation is a radical intervention in any economy because it inversely affects all economic transactions, especially if it’s drastic, sudden and without proper notice.
The consequence would be that the black market will thrive through investment in physical assets, obviously leading to a weakened economy.
I support demonetisation of our economy, but again, let us change the players for the exercise to make sense.
It’s been made to look like carrying $1,000 in a car you are branded a criminal. To some, that’s pocket change; some traders carry more than Sh50 million to Eastleigh market to buy stock.
For some time now, the Kenyan economy has been cash-based. A purchase of a house in Muthaiga happens in cash and this money supports a construction in Kiambu; thus, the entire transaction is not filtered into the banking sector.
Stripping a currency unit of its status as legal tender directly affects the medium of exchange used in all economic transactions. It can help to stabilise existing problems or cause chaos.
Looking at the bigger picture however, demonetisation is initiated by nations with a wide array of motives.
The long-term expectations are destruction of counterfeit currency, reduction I terrorism, increased liquidity in banks and curbing black money.
This move is likely to fire up digital transactions, increasing cybercrime by a high margin as our techs are not well-equipped to handle the same.
A transition towards a corruption-free society are being cited as the long-term benefits of this short-term pain. But are the inconveniences worth the gains that are accrued to us?
As the poor, who welcomed the new order, sleep peacefully at night, those with dirty money have to gulp down sleeping pills!
