Big Four Agenda
Mobile Network Operators
Operation of Public Service Vehicles
Reserve Bank of India
The Central Bank of Kenya
The Payments Association of Kenya

LETTERS: Entrench electronic cash to curb illicit money

The Central Bank of Kenya (CBK) is in the process of issuing new currency notes and coins. Going forward, Kenyans would like their culture and heritage depicted on their currency. Since this sentimental perspective is entrenched in our constitution and is well under implementation, the transition presents a golden opportunity to institute fundamental changes in the way we interact with money. The changes should go beyond the optics and help us tackle ills and expenses associated with cash handling. The ills include theft of cash, expensive logistics, poor traceability, inefficiency while availing fertile ground for black money viz cash hoarding (mattress banks), corruption, tax evasion, counterfeit currency, money laundering, drug trafficking, terrorism and a hoard of other ills perpetrated through cash.To cure the Indian economy off black money, the Reserve Bank of India (RBI) on November 10,2016, commenced withdrawal and invalidation of old high denomination currency notes.The directive from the government was that all old high denomination currency notes were to be surrendered to commercial banks or to the RBI directly in exchange of new notes for amounts less than $100 per individual per day. Anything above this amount was to be deposited into a bank account on or before December 31,2016. Any old notes held beyond the deadline would stand derecognised.The report card from India sends mixed signals as it is not very clear whether the effort achieved its goal as the demonetized currency surrendered to the RBI was 99 percent which was way beyond the 80 percent anticipated by the RBI and the public.The expectation was that 20 per cent of money in the economy was black money and would be wiped out since there were many people who would hesitate to surrender their money since it was not clean. However, it appears the money was either not so black or the hoarders were too smart for the system.It is also likely that the RBI underestimated the black economy and should have known black money had taken the economy to 120 per cent of the known. It is noteworthy that this was the third time India was demonetizing its currency having previously done it in 1946 and 1978. The effort was still worthwhile as the government managed to dog whistle on the length it can persistently go to in pursuit of a clean-up.The government of Kenya can seize this moment presented by the issuing of new notes and rid Kenya off presumed black money and set the tone for a cash light economy. The government can start by sensitizing the public of impending withdrawal and invalidation of old notes and the subsequent curbing of transaction values. With everyone aware of impermissibility of high value transactions, hoarding of cash outside formal financial institutions would be considered financial suicide.

Reviewing the Big Four Agenda one year later

To begin with, the government can declare a grace period for large amounts to be deposited into bank accounts without questions. At the expiry of the grace period, five percent could be charged for any amounts above Sh200,000 in the belief that no taxes had been paid for the transactions that generated the money in the first place and of course as an appeasement to the public that some penalties have been suffered by the “corrupt”. When the deadline elapses, the denominations should be derecognized and cash transactions curbed at Sh200,000.Concessions will still have to be made to safeguard cash intensive businesses like retail outlets and public transport. Progressively, programmes should be put in place to enforce electronic payments in these sectors. As per the Operation of Public Service Vehicles (PSVs) Regulations 2013, the government attempted to introduce electronic payments in the transport sector which was a failure of epic proportions.The failure can be traced to uncoordinated efforts without a clear stakeholder institution embracing and championing the initiative. Payment stakeholders comprising of banks, Fintechs, Mobile Network Operators (MNO), social media big wigs were left to their own devices and ended up fronting disparate payment initiatives based on proprietary technology.The Payments Association of Kenya (PAK) through the NPS Act and NPS Regulations (2014) has since been formed. Standards and operationalization of electronic payments can be canvassed at PAK where all retail payments stakeholders are required to be members.The government, should desist from taxing electronic transactions. It should ensure citizens suffer no disadvantage by choosing to pay through electronic channels at all points of payments. This will spur the hitherto elusive cash light economy and rid the economy of black money.

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