Sunday, April 4, 2010

Tell me about fake money! Is it Romania where I heard they use plastic money?

I was seated at my desk one evening when some guy asked me for a Sh1000 note. The guy asking is among those, who in my book, ought not be asking for such amounts of money.
Now that I had just withdrawn the money, I gave it to him. But I craned my neck just to see why he had asked for the note (specifically).
Otherwise, I’d have told him, ‘nina punch mbili’(sheng’ for ‘I’ve got two five-hundred notes).
I saw him comparing the note to blank pieces of paper in a black briefcase. Now that’s when I knew an investigation was on.
It is after this episode that Mustafa Mwalimu and Dennis Onsarigo brought that series on the fake money on NTV. Almost simultaneously, award winning journalist John Allan Namu and Mohammed Ali had something similar on KTN. Now that got me worried!
So exactly, what does this mean? Let me first disclose that I am no economic expert, but then I use my commonsense relatively well and use my memory much much better.
When shrewd parking attendants of the Nairobi City Council printed fake receipts a few years back, the council lost revenue. It’s net profit dropped, of course, less the amount of fake tickets printed, because this saved the council the money to print the tickets.
That’s mathematics.
But when it comes to counterfeit money, it is the public that loses big time. For not only does the currency lose its value, but also there is a reluctance among foreign investors to accept payment in cash. How, pray, the investors reason, are they to tell that the cash is fake? That’s when they start insisting on electronic fund transfers, payment in dollars or euros and even gold.
And if the fake money circulates in the economy, it will reach a time when that supply will give way to inflation –a lot of money commanding few goods. The logic lies in the basic law of supply and demand: More money, higher prices for goods (to soak up the money) and in the end, more taxes. After all, the government is by far the largest consumer.
There is no way to escape a rise in taxes. Even if the fake money ends in bank vaults (the automated teller machines of our local banks are said to have dispensed fake cash), and somehow is banked at Central Bank undetected; the Central Bank will issue more Treasury Bills and Bonds to ‘soak up’ the supply and manage inflation. This means it will have to raise money to pay the interest on these securities. The most straight-forward way to get this money to pay the public the accrued interest will be on taxes. No?
Nonetheless, individuals and firms stuck with fake currency are automatic victims because it is a crime to circulate such monies and it will be illogical for banks to reimburse them.
As economists will say, there’s unlikely to be huge amounts of fake currency in circulation, but then however small the amount, it is the confidence (public and foreign) in the currency that matters.

PS: I hope you have read this expose in the Nation.

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