KAMPALA, UGANDA — The Bank of Uganda (BOU) is grappling with significant hurdles in its long-running bid to phase out the 1,000 shilling banknote, a process complicated by unexpectedly high costs and public resistance to its coin replacement.
What was anticipated to be a straightforward transition has proven far more challenging, primarily due to the escalating expense of minting new coins to replace the familiar paper notes.
“The entire Shs1,000 note will be gradually withdrawn,” stated Dr. Adam Mugume, executive director of research at the Bank of Uganda. However, he acknowledged the difficulties, noting that the notes are “heavily used in transactions” and their design renders them prone to wear and tear, necessitating costly replacements. The bank’s goal is to replace them with currency that maintains its value more effectively.
The initiative, which began over two years ago, has been hampered by delays in the procurement process for new coinage. Dr. Mugume indicated that despite initial steps, the sufficient supply of replacement notes has not materialized, leaving the old notes stubbornly in circulation.
A major impediment has been the soaring cost of producing coins. In the past 12 months alone, the cost of coin issuance has surged by 53 percent, from Shs9.3 billion to Shs13.3 billion. While this figure remains below the Shs18 billion threshold that would trigger a re-evaluation of the bank’s strategy, the increase represents a considerable financial strain.
The bank commissioned the International Monetary Fund (IMF) in June 2023 to conduct a cost-benefit analysis on replacing low-denomination notes with coins. A letter of intent signed by Finance Minister Matia Kasaija and Dr. Mugume underscored the need for this study, pointing to the economic pressures of currency replacement.
Despite the challenges, Dr. Mugume maintained that the long-term benefits of phasing out the notes outweigh the current difficulties. He described the process of “coining” as a complex global endeavor, with minting companies scaling back and requiring consistent demand to make it viable.
Furthermore, public acceptance has been a notable hurdle. The 1,000 shilling coin, introduced in 2012 to commemorate Uganda’s 50th anniversary of independence, has largely failed to gain widespread use and remains largely out of circulation. This lack of public adoption for the existing coin replacement adds another layer of complexity to the BOU’s efforts to transition away from the paper note.
While the Bank of Uganda’s annual report shows a decrease in the overall cost of issuing banknotes, the specific challenge of shifting from the 1,000 shilling note to coins continues to be a significant obstacle in its currency management plans.
