In a move that still has the country talking, last week, Central Bank of Kenya (CBK) Governor Patrick Njoroge announced that the current Sh1,000 note will cease to be legal tender from October 1.
Those holding this currency have been advised to deposit it with commercial banks, their other options being limited to exchanging it for foreign currency at forex bureaus or spending all of it before the October 1 deadline.
Although CBK’s move has since been challenged in court by activist Okiya Omtatah and East African Legislative Assembly MP Simon Mbugua in separate petitions, the directive is sending jitters across the property market.
Ms Diana Kituku, a financial engineer who consults for investors in the industry, reveals that some stakeholders are expressing uncertainty over the short-term and long-term impact of the move.
“The move was necessary to combat corruption and black market trades. However, as people struggle to move money that they had previously hoarded back to the formal economy, we can expect some teething troubles as the economy adjusts,” Kituku says.
Johnson Denge, the Senior Manager for Regional Markets at Cytonn Investments, downplays the effect of the move to mop up the Sh1,000 note, saying that demonetisation is A normal practice across the world, citing India as a case study.
India’s latest demonetisation exercise took place in 2016, though it is important to point out that the announcement of demonetisation was followed by prolonged cash shortages in the weeks that followed, which created significant disruption throughout the economy.
Drawing lessons from India, Kituku is of the opinion that Kenya might be facing an acute cash shortage in the coming days as people rush to deposit to banks to exchange their old notes for new ones.
“What this means for the property market is that in instances where developers pay for their goods and services in cash, we may witness biting delays due to lack of cash.