How the Election Affected the Flow of Money in Personal Wallets and Banks

Currencies

How the Election Affected the Flow of Money in Personal Wallets and Banks


Cash circulating in the country hit a record high of 267.7 billion shillings in July as the country prepared for the August 9 elections.

The latest data released by the Central Bank of Kenya (CBK) shows that liquidity outside the banking system increased by 6.5% from 251.4 billion shillings in June to 267.7 billion shillings in July.

The figure fell slightly to 257.1 billion shillings in August – the second highest level on record as Kenyans voted for their leaders.

Survey Interruptions

The record figures seen in the two months point to the possibility that Kenyans are withdrawing cash and opting to keep it in their wallets in anticipation of the disruptions brought by polls.

The rise also indicates the possibility that politicians have withdrawn large sums to facilitate their campaigns. Politicians spend millions on election facilitation, advertisements, vehicle and equipment branding, and poster printing, among other things.

Voter facilitation, a practice that has become rampant, intensified in the August elections, driven by the high level of competition and high inflation rates that saw Kenyans struggling to meet their daily needs.

Average inflation for the first eight months of the year was 6.7%, prompting Kenyans to demand more money from politicians.

Some Kenyans may also have anticipated election disruptions, prompting them to withdraw savings and hide cash at home following recent election-time experiences.

Demand deposits – cash saved in current accounts and available on demand – also hit a record high of 1.65 trillion shillings in July, an increase of 106 billion shillings from June.

The rise in demand deposits matched a drop in term deposits – long-term cash savings – which stood at 1.57 trillion shillings, the lowest since May last year.

Savings in current accounts at the end of August, however, fell slightly to 1.58 trillion shillings, as long-term deposits rebounded to end the month at 1.64 trillion shillings.

Shilling weakening

Foreign currency savings in local banks hit a record high of 905 billion shillings in July, driven by the weakening of the shilling against the dollar, but fell slightly to 896.2 billion shillings in August. The shilling has depreciated 6.8% against the dollar since the start of this year, attributed to strong demand for the US currency.

Global economic uncertainty resulting from the Russian-Ukrainian conflict and high inflation in Western countries has also strengthened the dollar – a safe-haven asset – meaning it pays to hold the currency for capital gains and a hedge against potential future economic upheavals.

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