The government of Uganda has indicated it is conducting a cost-benefit analysis that will inform the decision to replace low-denomination banknotes with coins.
In a Letter of Intent published in the June International Monetary Fund (IMF) Fourth Review for Uganda, Finance Minister Matia Kasiaja and Bank of Uganda Executive Director Research Adam Mugume – who signed on behalf of the government – noted that printing costs for banknotes had continued to escalate thus necessitating a market study to see which ones can be replaced with coins.
“Given high currency printing costs, we have conducted a market study to compare printing costs, and a cost-benefit analysis of replacing low denomination banknotes with coins,” the letter signed by Mr. Kasaija and Dr. Mugume, on behalf of Deputy Bank of Uganda governor Michael Atingi-Ego, reads in part.
Dr Mugume said that the Bank of Uganda would start by phasing out the Shs1,000 paper note, before looking at others.
“The entire Shs1000 note will be gradually withdrawn. The notes are heavily used in transactions and, therefore, soiled heavily, which renders them unusable or reduces their lifespan. We have to reprint them frequently, yet the cost of printing relative to value is quite high,” he said, noting a procurement process for the same had already been put in place.
However, Dr. Mugume did not provide details of when the Central Bank expects to wholly phase out the Shs1,000 paper note and which other notes have been considered for replacement as indicated in the June 6 letter to Ms. Kristalina Georgieva, the IMF managing director. In 2012, the Bank of Uganda issued a Shs1,000 coin as part of events to commemorate 50 years of Uganda’s independence.
The coin, even as it has been less visible compared to the paper notes, has since remained in circulation.
The Central Bank has previously wholly replaced other small currency denominations ranging from Shs1 to Shs500 with coins, citing durability and easy handling.
The letter of intent to the IMF as well cites the increasing cost of printing money as the motive for the replacement of paper notes with coins, even as Dr Mugume, said the changes “were not [about] saving money”.
In the 2021/22 Annual Report, the Bank of Uganda indicated the cost of issuing currency, which included printing and circulation, had gone up, increasing by Shs24.4b or 16.5 percent in the period.
For instance, the report noted currency-related costs had increased from Shs147.5b during the 2020/21 financial year to Shs171.9b due to a rise in demand for cash following the reopening of the economy and the rise in inflation.
Raft of measures
The move to replace currency notes with coins is among a raft of measures under the Memorandum of Economic and Financial Policies in which the government has reassured development partners such as the IMF of effective cost management and reform to deliver sustainable fiscal consolidation.