The total value of physical money circulating in the Kenyan economy rose by 5.6 percent in the year to June 2024, as citizens withdrew more money than they deposited, pointing to a growing demand and increased liquidity in the economy.
Latest disclosures from the Central Bank of Kenya—which issues the notes and coins—reveal that the total value of the currency in circulation hit Sh333.8 billion last June, up from Sh315.97 billion a year earlier.
This rise is nearly double the 3.5 percent growth recorded in the 12 months to June 2023.
The rise was largely driven by an increase in banknotes, which hit Sh322.77 billion, a rise of Sh17.36 billion from the Sh305.41 billion recorded at the end of June 2023. Coins, on the other hand, rose 4.5 percent to hit Sh11.03 billion.
“The net increase of currency in circulation was attributed to higher currency outflows (withdrawals) compared to the net inflows (deposits),” the apex bank said in its annual report.
Withdrawals, which are mostly done through commercial banks, totalled Sh534.71 billion throughout the year, while deposits, also done through the lenders, added up to Sh516.83 billion.
A surge in the money in circulation points to increased demand for physical cash, an indication of a rise in the need for liquidity, pushing people to withdraw savings and investments for use in day-to-day transactions.
This came as high interest rates in the economy pushed up the cost of credit and default on loans, forcing many to shun credit and seek alternative means of financing, such as withdrawing savings and investments.
Multiple surveys revealed that Kenyans raided their savings last year to keep up with the growing cost of living and many cut back on savings and investments, diverting the money to essential consumption.
The Financial Access Survey, for example, recently revealed that one in three Kenyans last year borrowed to pay back their loans to avoid a default and that the savings rate dropped from 74 percent in 2021 to 68 percent in 2024.
Despite the growing demand for physical cash, both withdrawals and deposits recorded over the period declined, pointing to a dampened economic activity even though the net outflows increased.
Over the period, withdrawals fell by 3.8 percent to Sh534.7 billion, while total deposits fell by 5.1 percent to Sh516 billion.
Data from the apex bank indicate that in June, the amount of demand deposits – which are generally liquid savings held with banks, dropped by Sh50 billion in the twelve months to June last year, falling down to Sh1.612 trillion.
Kenyans however increased their deposits of foreign currencies, which rose to Sh1.3 trillion from Sh1.18 trillion a year earlier.
Leave a comment