Uganda has indicated it is conducting a cost benefit analysis that will inform the decision to replace low denomination banknotes with coins.
In a letter published in the June International Monetary Fund (IMF) Fourth Review for Uganda sent to IMF Managing Director Ms Kristalina Georgieva, Finance Minister Matia Kasiaja and Bank of Uganda (BoU) Director of Research & Policy Adam Mugume noted that printing costs for banknotes had continued to escalate thus necessitating a market study to see which ones can be replaced with coins.
“Given high currency printing costs, we have conducted a market study to compare printing costs, and a cost-benefit analysis of replacing low denomination banknotes with coins,” the letter reads.
Dr Mugume on Thursday told Monitor that Bank of Uganda would start with phasing out the Ush1,000 paper note, before looking at others.
“The entire Ush1000 note will be gradually withdrawn. The notes, which were heavily used in transactions, soiled heavily rendering them unusable with and with a reduced lifespan. We have to reprint them frequently, yet the cost of printing relative to value is quite high,” he said, noting a procurement process for the same had already been put in place.
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However, Dr Mugume did not provide details of when BoU expects to wholly phase out the notes and which other notes have been considered for replacement as indicated in the letter. In 2012, BoU issued a Ush1,000 coins as part of events to commemorate 50 years of Uganda’s independence.
The coin, even as it has been less visible compared to the paper notes, has since remained in circulation.
BoU has previously wholly replaced other small currency denominations ranging from Ushs1 to Ushs500 with coins, citing durability and easy handling.
The letter as well cites the increasing cost of printing money as the motive for replacement of paper notes with coins, even as Dr Mugume told Monitor the changes “were not about saving money”.
In the 2021/22 Annual Report, BoU indicated the cost of issuing currency, among which included printing and circulation, had gone up, increasing by Ush24.4 billion ($6.72 million) or 16.5 percent in the period.
For instance, the report noted currency-related costs had increased from Ush147.5 billion ($40,63 million) during the 2020/21 financial year to Ush171.9 billion ($47.36 million) due to a rise in demand for cash following reopening of the economy and the rise in inflation.
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Raft of measures
The move to replace currency notes with coins is among a raft of measures under the Memorandum of Economic and Financial Policies in which government has reassured development partners such as the IMF of effective cost management and reform to deliver sustainable fiscal consolidation.
