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iHub Research By Angela Okune / April 24, 2012

Economic Insights from Kenyan Currency

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Guest post by Chris Orwa of Doban Africa

Disclaimer: This research does not necessarily reflect the views of iHub Research but is solely the views of the author. The research is not exhaustive; it was undertaken with a limited data set and some calculations were done using statistical estimates, therefore, the hypotheses put forth may be invalid in light of new data.

 

After obtaining serial numbers of randomly collected Kenyan currency notes, it was time to fire up the algorithms and study how the Central Bank of Kenya (CBK) determines how much money gets injected into the Kenyan economy. This draws parallel with consumer products that leverage on market dynamics, and have a footprint on currency production.

The first technique to be applied was a frequency analysis on a timeline; this basically enumerates the volume of production/available notes with passage of time. The results exhibited an exponential growth/decay pattern which shows less of earlier produced currency and more of the latest (It generally takes five years for a note to be too old for use). However, this pattern breaks for the 100 and 50 shilling denominations in the year 2009. The CBK doubled productions of these units in response to market demands. It is in this year that M-PESA became a house hold name in Kenya and Safaricom reported the 101-500 category as their most popular transaction band.

From an earlier data mining project on Safaricom scratch cards, it was observed that the 50 shilling card was the most popular among subscribers. Markets exert force which is imprinted on the currency. We can therefore conjecture a law, the hooks law of products which will state that, as the number of product (useful products) increase in a company, the amount people are willing to spend increases as long as the elastic limit is not reached. The elastic limit for mobile products is at 50/= and 100 for general products. I’d suggest large production of the 100 shilling Kenya Power pre-paid meter token.

The CBK normally produce notes and coins annually to replace old and damaged currencies, this is also referred to as stop-gap orders. Some years had currency produced twice, and they happened to be pre or post electioneering years, namely, 1993, 1995 and 2003. It was also observed that these years experienced high inflation rates, the highest at 46% in 1993. The production of the 10 shilling note was halted in 1995 (notes are more expensive to produce than coins), similarly the 20 shilling note was dropped in 1998 (instead of double production). Next time there is high inflation and an election looming, take your goods to the market (High inflation + Elections = More cash).

 

Author : Angela Okune

Angela is Research Lead at iHub. She is keen on growing knowledge on the uptake and utility of ICTs in East Africa. She is also co-lead of Waza Experience, an iHub community initiative aimed at prompting under-privileged children to explore innovation and entrepreneurship concepts grounded in real-world experience.


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