Uganda has witnessed a substantial increase in the money supply, attributed to the country’s economic expansion. The annual report from the Bank of Uganda has revealed that the money in circulation surged by UGX 487 billion, marking a noteworthy growth of 7.1% in the period ending June 2023.
Steady economic growth spurs money supply expansion
According to the report, the boost in money circulation is a direct consequence of the nation’s thriving economic activities. During the year ending in June, the money in circulation climbed from UGX 6.8 trillion to UGX 7.3 trillion, primarily driven by the expanding economy.
The Bank of Uganda’s annual report further highlights that the net value of banknotes in circulation escalated by UGX 477 billion, surging from UGX 6.6 trillion in June 2022 to UGX 7.1 trillion. The value of coins also witnessed an increase of UGX 9.9 billion, largely due to heightened demand for cash, reflecting the upswing in economic activity.
Currency department’s role in sustaining clean currency
The report acknowledges the Central Bank’s efforts to maintain the integrity of the currency. The currency department plays a pivotal role by meticulously sorting cash deposited by commercial banks and issuing both new and old banknotes into circulation. In the 2022/23 financial year, the currency department sorted banknotes worth UGX 10.3 trillion, signifying an 8% increase from the previous year’s value of UGX 9.6 trillion.
Nonetheless, it’s important to note that this increase was relatively lower than the 14% surge recorded in the year ending June 2022, when money in circulation swelled by UGX 818 billion, rising from UGX 6 trillion to UGX 6.8 trillion. It is worth mentioning that money in circulation had previously dipped to just UGX 5.7 trillion in the year ending June 2020 but rebounded, exhibiting a remarkable 24% growth to UGX 6 trillion. This recovery was primarily attributed to the gradual reopening of the economy, which had previously been adversely affected by Covid-19-related restrictions.
Rise in reissued notes and currency issuance costs
The Bank of Uganda’s report also underscores a significant increase in reissued notes, which saw a 19% rise. Out of the UGX 10.3 trillion in sorted banknotes, a substantial UGX 7.9 trillion, equivalent to 76%, was returned as reissued currency.
Another noteworthy revelation from the report is the increased cost associated with currency issuance, primarily stemming from a 16% rise in new notes. The costs surged from UGX 172.3 billion to UGX 199.3 billion. This necessitates a call for the optimization of operational efficiencies in processing cash turnover to mitigate the escalating costs linked to currency issuance.
Bank of Uganda’s forward projections
The Bank of Uganda has projected a sustained rise in the demand for money, emphasizing the need for maximizing efficiencies in processing turnover to align with the growing costs of currency issuance. The Central Bank has reaffirmed its commitment to working closely with the banking sector to enhance efficiencies throughout the cash value chain. As a result, they anticipate that the overall cost of currency will be in tandem with the demand for cash, influenced by prevailing macroeconomic conditions.