Should we print our own currency?

Owing to its sensitive nature, the disagreements on currency printing that emerged in government (Daily Monitor, December 22, 2016) are not just worrying but also scary for anyone with a stake Uganda’s economy due to a number of reasons.

Firstly, the matter which unfolded last year does not seem to have deserved attention, dire consequences for economies like Zimbabwe or Venezuela are often triggered by what governments disregard as mundane issues. One such issue for Uganda is whether or not to print currency locally in order to cut enormous costs and tap into benefits.

Second is the informal (and suspicious) manner in which the matter is handled, with Bank of Uganda the principal party initially being left out. Despite being held at the highest level, discussions on currency printing without the central Bank were (to use NRM jargon) in essence held at the wrong forum. In addition to handling traditional central banking functions like managing domestic credit and movement in the sources of money supply the primary responsibility of the Bank of Uganda is to regulate the monetary system so as to maintain stability of the national currency and facilitate balanced economic growth.

The Bank is solely responsible for issuing currency in quantities adequate to facilitate financial transactions while at the same time ensuring that the amount of money in circulation does not jeopardise financial stability in the economy.

It is on this core and crucial function for the economy that the central bank’s institutional autonomy is hinged. How on earth can any discussion of currency printing, in a formalised economy, be held at the highest level without the central bank? Yet directives were issued thereafter to update the governor on the way forward.

Section 20 of the Bank of Uganda Act Cap 51 gives the central bank sole rights to issue currency in Uganda and specifically prohibits government or any other person from doing the same. It further specifies that the bank shall arrange for printing of notes and printing of coins. While section 162(2) of the 1995 Constitution requires the central Bank to conform to the Constitution in performing its duties and commands that in so doing, the bank shall not be subject to the direction or control of any person or authority!

In his response to the proposed plan of local currency printing the governor, in agreement with some senior finance ministry officials, raises valid security concerns. He rightly argues that money printing is complex business handled by a few reputable printers; his argument on increasing non cash payments in the economy that would render the venture unprofitable overtime also merits consideration. A joint venture driven by a new opportunity also raises concerns as a collapse could adversely affect currency stability to which so much energy and time has been devoted albeit with wanting results.

To act as a store of value, which is one of its core functions, money must be reliably saved, stored and retrieved in which case the value of money must remain stable over time. Despite untiring efforts amid sustained relative stability this vital aspect of money still eludes our perennial economic managers and to a large extent hinders growth of a crucial saving culture in the economy. This could get even worse with avoidable currency issues.

Divesting the government printer to private currency printer is even more worrying given its location and informality with which government business is conducted. It literally amounts to handing issue of currency to the presidency.

One of the unique functions of money in Africa, at which our shilling now excels, is compromising political adversaries and hypnotising the electorate across the entire strata of society into passivity.

Ministers also seem incapable of freely offering their sworn counsel and advice. “If the bank of Uganda feels unsafe with this (local currency printing) that is their business” ICT minister was quoted by Daily Monitor! While his Finance colleague said of the governor; “He is my advisor… I run the economy..”, but prosperous economies are managed by teams not supermen or women.

It is, however, imperative to audit Uganda’s cost of currency printing now estimated at $70 million per annum compared with currencies like the Cedi since UK blue chip companies like Rolls Royce are well known for bribery.