The Ugandan government has revealed that it is conducting a cost-benefit analysis to determine whether to replace low denomination banknotes with coins.
The escalating printing costs for banknotes have prompted the government to explore alternatives through a market study to identify suitable denominations for replacement.
In a Letter of Intent published in the June International Monetary Fund (IMF) Fourth Review for Uganda, Finance Minister Matia Kasaija and Bank of Uganda Executive Director of Research Adam Mugume stated that high currency printing costs necessitated the evaluation of replacing certain banknotes with coins.
Dr. Adam Mugume confirmed that the Bank of Uganda plans to start by phasing out the Shs1,000 paper note due to its heavy usage in transactions, resulting in frequent reprints.
The cost of printing relative to the note’s value is considered high. However, specific details regarding the complete phase-out timeline and potential replacement of other denominations were not disclosed.
Uganda previously introduced a Shs1,000 coin in 2012 to commemorate the country’s 50 years of independence. Although less visible compared to paper notes, the coin has remained in circulation.
The Central Bank has historically replaced other small currency denominations ranging from Shs1 to Shs500 with coins due to their durability and easy handling.
The rising cost of printing money was cited as a motive for considering the replacement of paper notes with coins in the Letter of Intent submitted to the IMF. However, Dr. Mugume clarified that the changes were not primarily about cost savings.
Bank of Uganda’s 2021/22 Annual Report revealed that the cost of issuing currency, including printing and circulation, increased by Shs24.4 billion or 16.5 percent during the period.
Currency-related costs rose from Shs147.5 billion in the previous financial year to Shs171.9 billion due to heightened demand for cash following the reopening of the economy and increased inflation.
The move to replace banknotes with coins is part of a broader set of measures outlined in the Memorandum of Economic and Financial Policies.
The Ugandan government aims to assure development partners, such as the IMF, of effective cost management and reform to achieve sustainable fiscal consolidation.