The Bank of Uganda has provided clarification regarding the proposed replacement of the 1000 Shilling currency note with a coin. They emphasized that the operational status and legality of the currency will remain unaffected once the coin is introduced.
Both the coin and the currency note will retain their status as legal tender even after the printing of the note ceases. This arrangement will persist until the currency note naturally phases out of circulation due to wear and tear.
Adam Mugume, the Executive Director of Research at the Bank of Uganda, explained that they are currently in the initial stages of this process. This involves conducting a market survey and formulating the necessary policy. The approval of this policy will subsequently guide decisions on design, timelines, and other pertinent aspects.
When the transition away from the currency note is officially announced, it won’t be deemed obsolete. Instead, it will coexist alongside the newly introduced coin. This dual circulation approach is intended to alleviate any public concerns or panic.
The idea of discontinuing the 1000 Shilling note was initially introduced over a decade ago. It led to the introduction of the coin in 2012, commemorating the country’s 50th independence anniversary. Since then, the coin has been in concurrent use with the currency note.
However, the ongoing discussion has revolved around decreasing the use of paper currency due to various challenges. These include elevated printing costs and health-related issues. Despite innovative processing technologies, the overall cost of printing money has risen in tandem with economic expansion and demand.
Bank of Uganda’s Deputy Governor, Michael Atingi-Ego, noted that lower denomination notes deteriorate more rapidly due to higher circulation rates compared to larger denominations. This has prompted the decision to phase out the 1000 Shilling note. Atingi-Ego mentioned that these notes are seldom returned to the banking system, and if they are, they are typically too worn out to be recirculated, resulting in costly management.
In terms of figures, the value of processed banknotes has increased by 614 billion Shillings or 6.8% from 9 trillion in 2020/21 to 9.6 trillion Shillings in 2021/22. Coins make up about 3% of the total money in circulation. As of June 2022, coins accounted for 206 billion Shillings, up from 193.4 billion Shillings in June 2021. On the other hand, notes in circulation amounted to 6.6 trillion Shillings, compared to 5.8 trillion in June 2021.
The Bank of Uganda’s Annual Performance Report for 2021/22 revealed that the cost of issuing currency increased by 24.4 billion or 16.5% from 147.5 billion in 2020/21 to 171.9 billion Shillings in the financial year 2021/22. This escalation is attributed to heightened public demand for cash following economic reopening and rising inflation.
The Bank noted that increased inflationary pressures contribute to a higher net demand for currency (more withdrawals than deposits) in addition to economic growth. They call for increased public awareness to adopt electronic payment systems, aiming to reduce the demand for paper and coin currency and subsequently decrease costs.
In 2018, the US National Institute of Health published a study indicating that currency notes, particularly lower denominations, were heavily contaminated with disease-carrying bacteria.
The study collected sixty paper notes of varying denominations (1000, 2000, 5000, 10000, 20000, 50000) from different food vendors near the Mulago Hospital Complex. Among these, the 1000 Shilling note was found to be the most contaminated, while the 50,000 Shilling note was the cleanest. Of the 60 samples analyzed, 27 (45%) contained Staphylococcus aureus, a bacterium linked to respiratory ailments.