The government is currently conducting a cost benefit analysis to determine whether to replace low denomination banknotes with coins. 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, representing the government, expressed concerns over escalating printing costs for banknotes. They revealed that a market study was undertaken to assess which banknotes could potentially be replaced with coins.
According to the letter, the decision to replace some banknotes with coins is prompted by the high costs associated with printing currency. The Shs1,000 paper note is set to be gradually phased out first due to heavy usage in transactions, leading to quick soiling and reduced lifespan. This frequent need for reprinting incurs significant expenses relative to the value of the notes. As a result, the Central Bank has initiated a procurement process to facilitate this transition.
Although the Shs1,000 coin was introduced in 2012 during Uganda’s 50 years of independence celebrations, it has remained less visible compared to paper notes but has continued to circulate. The Central Bank has previously replaced other small currency denominations ranging from Shs1 to Shs500 with coins due to their durability and ease of handling.
While the letter to the IMF cites the increasing cost of printing money as a primary reason for the shift to coins, Dr. Mugume clarified that the change is not solely about saving money. However, in the 2021/22 Annual Report, Bank of Uganda acknowledged that the cost of issuing currency, including printing and circulation, had risen by 16.5 percent, amounting to an increase of Shs24.4 billion during that period. The rise in demand for cash after the reopening of the economy and inflation contributed to this increase in currency-related costs.
Replacing currency notes with coins is just one of the measures outlined in the Memorandum of Economic and Financial Policies to assure development partners like the IMF of effective cost management and fiscal reform, aimed at achieving sustainable fiscal consolidation. The specific timeline for completely phasing out the Shs1,000 paper note and any other notes considered for replacement were not mentioned in the letter.
