Uganda is the latest member of the East African Community (EAC) after Tanzania to stop the use of the Kenyan currency in an effort to curb its banks from being used to launder stolen money back into Kenya.
This is after the Central Bank of Kenya (CBK) announced plans to withdraw the old Sh1,000 notes from circulation to combat illicit financial flows and counterfeits.
The Bank of Uganda says the move was necessitated after the CBK informed it that it had issued a new series of banknotes effective May 31. The CBK also suspended currency conversion and repatriation of Kenyan currency.
“In light of the new development, the Bank of Uganda (BoU) will not accept Kenya shillings at its counters with immediate effect,” a letter to commercial banks in the country reads.
BoU advised Ugandan banks to subject all flows from and into Kenya to enhanced due diligence, noting that changing Kenyan currency from old to new banknotes can only be done in Kenya.
Tanzania took a similar action on Friday last week in what will force Kenyans living in the neighbouring countries to return home to exchange Sh1,000 notes or risk losing their money.
CBK announced that the old Sh1,000 note will cease to be legal tender from October 1.
It has also introduced new notes of Sh500, Sh200, Sh100 and Sh50, which will operate parallel to the old ones.
Uganda is Kenya’s biggest trading partner and it is common to see traders accepting Kenyan currency as far as its capital Kampala.
It is also the latest loophole that has been shut by the CBK that could have been used to clean money.
The Central Bank has come up with stringent rules on changing of currency among them preventing those without bank accounts from transacting more than Sh1 million.
It has also asked banks to seek for its express permission before exchanging amounts in excess of Sh5 million.
The move is seen as Kenya’s next effort to confront corruption.
People with stolen money and those with ill-gotten cash have less than four months to spend it or find ways of dumping it into the financial system.