Uganda is contemplating a strategic move to replace low-denomination banknotes with coins in an effort to address the escalating printing costs and enhance cost-effectiveness. The decision will be guided by a comprehensive cost-benefit analysis.
To begin with, the 1,000-shilling paper note, which suffers from a shortened lifespan due to frequent reprinting caused by heavy soiling, will be gradually phased out. This denomination is extensively used in transactions, but its durability issues make it a prime candidate for replacement with more robust coins.
While specific details about the exact timeline and other denominations targeted for replacement have not been disclosed, it's worth noting that the 1,000-shilling coin, minted in 2012 to commemorate Uganda's independence, remains in circulation.
The Bank of Uganda has historically replaced smaller currency denominations with coins, citing their durability and ease of handling as key advantages.
The motivation behind this move is partially driven by the increasing costs associated with printing money, as evidenced in the 2021/22 Annual Report of the Bank of Uganda. Currency issuance expenses, including printing and circulation, have seen a significant rise. For example, during a specific period, currency-related costs increased by Ush24.4 billion ($6.72 million), representing a 16.5 per cent jump. Contributing factors include the reopening of the economy and the impact of rising inflation, which have led to a higher demand for cash.
Replacing currency notes with coins is just one of the measures outlined in the Memorandum of Economic and Financial Policies. The Ugandan government seeks to assure development partners, including the International Monetary Fund (IMF), of effective cost management and reforms aimed at achieving sustainable fiscal consolidation.