Money in circulation grows due to high demand
Uganda's legal tender. PHOTO/FILE
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- Bank of Uganda also indicated that it had sorted Shs12.8 trillion, 78 percent of which or Shs10 trillion was reissued, but Shs2.8 trillion was withdranw from circulation after it was deemed unfit.
Both cash in circulation and deposits in banks rose in the year ended June, according to Bank of Uganda.
The 2024 Annual Report shows that demand for cash, as measured by withdrawals of banknotes and coins from Bank of Ugansa rose by 14 percent, increasing from Shs11.6 trillion in June 2023 to Shs13.2 trillion.
The growth was due to heightened economic activity and preference for cash transactions resulting from challenges in digital infrastructure and high transaction fees. Over the last 10 years, digital payments have grown but cash continues to dominate
Bank of Uganda also indicated that during the year under review, deposits in commercial banks grew by 11 percent, rising from Shs11.1 trillion to Shs12.4 trillion, which, together with cash in circulation, saw net circulation increase by Shs877b or 80 percent compared to Shs487b in June 2023.
Net cash circulations, which the Central Bank uses to measure economic activity and attendant fundamentals, has remained varied over the last four years, falling by 71 percent to Shs321b in June 2021 from Shs1.1 trillion, before increasing by 155 percent to Shs819b.
The Shs1,000 note denominated, representing 26 percent of the total currency in circulation, followed by Shs10,000, at 23 percent and Shs20,000 note at 16 percent. The Shs2,000, Shs5,000, and Shs50,000 notes form the lowest quantity of 12 percent, 11 percent, and 11 percent, respectively.
Bank of Uganda also indicated that it had sorted Shs12.8 trillion, 78 percent of which or Shs10 trillion was reissued, but Shs2.8 trillion was withdrawn from circulation after it was deemed unfit.
The increase in reissued currency optimised the issuance of new banknotes reduced by 7 percent from Shs452m to Shs420m, which led to an 8 percent reduction in banknote issuance costs from Shs189.9b to Shs174.2b.
Bank of Uganda projects the demand for cash to remain elevated, driven by a projected increase in economic activity supported by rising household spending and public investment.
Therefore, to meet the anticipated rise in demand, the Central Bank said it would continue to optimize processing efficiencies, noting that while digital payment systems - such as mobile wallets, online banking, and fintech solutions - are experiencing steady growth, cash is expected to remain the dominant payment method in the near term due to ongoing challenges in digital infrastructure and the high transaction fees associated with electronic payments.
