CBK spends Sh800m more as Kenyans say new notes wear out faster

Bank employees said the new notes are wearing out three times faster than the older ones, which means they are returning defaced currency to Central Bank of Kenya (CBK) more frequently.

On Wednesday, the Nation spoke to two workers at different banks, seeking to understand their experience with the new notes and how they compare to the older ones.

They requested to speak anonymously because of the sensitivity of the matter and since they are not authorised to speak to the media.

“The new banknotes wear out too quickly. We’ve been receiving quite a huge number of the very old notes that cannot be returned to the market,” one of the bank workers said.

“With the new currency notes, it is taking a week to fill up a bundle of notes that can no longer transact and must be submitted to the CBK, yet it took two to three weeks with the older currency notes,” he said.

We are now holding them very carefully, like eggs.

A bundle, he explained, consists of 100 pieces of a particular value of notes (such as 100 pieces of Sh50 notes). The time it takes to fill up a bundle always depends on a particular branch of a bank and the surroundings and so others could be recording higher numbers within a shorter period.

Another worker at a bank said she had discovered that the lower-value notes are wearing out faster than the others.

“Maybe it’s because the Sh1,000 notes do not transact regularly and so they do not wear out a lot. But the lower values such as Sh500, Sh200 and Sh100 wear out really quickly. Sh50 is the worst,” she said.

So delicate are the notes that even matatu conductors have learnt to be more careful while handling the new generation currency.

“They have even made us change the way we hold money because when you fold them around the finger they easily tear apart. We are now holding them very carefully, like eggs,” said Jose, a conductor at the Khoja matatu terminus in Nairobi.

Customers dismissive

Conductors who handle cash on a daily basis said while passengers were reluctant to accept torn older notes, they are now more dismissive. 

“Some customers refuse to take these new notes, especially those that are worn out and insist on being given coins or the old-generation currency notes,” a conductor said.

This, they added, is despite the fact that holding the notes together with cello tape when they tear apart, which has been a norm among Kenyans, is proving difficult with the new-generation currency notes.

Another conductor pulled out two Sh50 notes, one from the older generation and a new currency note and said, “Just look at these two and tell me which one is better. Look at how this one (the new currency note) is worn out.”

And it is not only the operators in the transport sector who have expressed concerns on the quality of the new notes.

Completely destroyed

Other Kenyans have said when they accidentally wash the notes in their clothes, they get completely destroyed.

While commissioning the new-generation bank notes on June 1 last year, CBK Governor Patrick Njoroge praised the currencies as bearing significant aspects of our nation, saying they would serve “as a means of passing knowledge, conserving culture and promoting our global uniqueness”.

“Each banknote has a unique theme to show the richness of our people and our beautiful country. For the Sh50 we have green energy, Sh100 agriculture, Sh200 social services, Sh500 tourism and Sh1,000 governance,” Dr Njoroge said then.

The CBK has not been as open on the quality and durability of the new generation currency notes, but now its financial statements seem to be telling a story.

According to its 2019/2020 financial statements, the bank spent Sh3,047,000,000 on the production of currencies. This figure represents Sh833 million additional costs, compared to the amount spent for currency production in the year 2018/2019.

Figures on the expenses the bank has been incurring in producing currency over the past six years show this was the highest amount the taxpayer has paid to have money circulating in the economy.

In 2017/2018, the bank spent Sh2.08 billion on currency production. In 2016/2017 the figure was Sh2.35 billion, in 2015/2016 it was Sh1.88 billion and in 2014/2015 it was Sh1.96 billion.

Over the period prior to this year, the amount spent on currency production ranged between Sh1.88 billion and Sh2.35 billion. But for the first time, it hit and surpassed the Sh3 billion mark.

This huge difference has yet again brought forward some level of proof that the new notes could indeed be wearing out faster.

CBK's admittance

In a tweet shared perhaps on a light note a few months after issuing the new notes last year, the CBK admitted that the notes were wearing out quickly.

“In the first few months, our new banknotes are going through a rather rough ‘initiation’. But we hope that Kenyans will handle the currency properly,” the bank said on its official twitter handle then.

But now it appears either their quality was poor, or perhaps the ‘initiation’ has taken too long.

We contacted the CBK on Wednesday for information on what had occasioned the more than Sh800 million rise in currency production expenses. We sought to find out whether the bank had received complaints on the rate at which the new currency notes are depreciating and to understand the difference in material used to make the old-generation notes as compared to the new currency.

“How has that affected the durability of the current denominations?” we asked.

How frequently

We also sought to understand how frequently the bank has been procuring new currency notes over the past financial year and how that compared with previous years. “How are the above factors related to the increase in the cost of currency production?” we asked.

“Everything published there is public knowledge,” the bank’s head of communications Wallace Kantai said, promising to get back.

The bank had not responded by the time of publishing.

According to the bank, the currency in circulation over the one-year period was valued at Sh257.7 billion, up from Sh249.5 in the year 2018/2019.

“Currency in circulation represents the nominal value of all bank notes and coins held by the public and commercial banks. The bank demonetises currency denominations that it considers no longer suitable for circulation through a Gazette Notice,” the bank stated.

Fifo method

It also stated that the currency production costs cover ordering, printing/minting, freight, insurance and handling costs.

“The bank’s inventory is comprised of new currency notes issued. Inventories are stated at the sum of the production costs. Cost is determined using the first-in, first-out (FIFO) method.

“Bank notes printing expenses and coin minting costs for each denomination which include ordering, printing, minting, freight, insurance and handling costs are initially deferred. Based on the currency issued into circulation, the respective proportional actual costs incurred are released to profit or loss from the deferred costs account. The deferred amount is recognised as ‘deferred currency expenses’ in other assets and represents unissued bank notes and coins stock,” the bank stated.

Its statements showed that over the year, it had Sh2.933 billion in deferred currency expenses, up from Sh2.165 billion in 2018/2019.