Dual Circulation of Uganda Bank Notes is not the Cause of Inflation

Bank of Uganda wishes to respond to concerns from the public about the co-current circulation of the old and new series of banknotes and its relation to the current high inflation in Uganda.

The dual circulation of both the old series and the new notes that were issued in May 2010 has absolutely no relationship with the current inflation levels. This is because the overall quantity of money issued did not change due to the introduction of the new notes.

Inflation on the other hand is high because of supply side shocks to food and international oil prices, and not excessive money supply associated with the new
issues of currency notes as insinuated by some sections of the public.

The decision to allow concurrent circulation of both series for some time was deliberate and intended to enable a smooth transition to the new series without disruption of normal business activities among the public. In addition, the Bank was keen to avoid panic among the population who are distant from banking services.

There was no need for members of the public to incur costs and bear the inconvenience of traveling to exchange centers that would be necessitated by the sudden outlaw of the old family of notes.

Although no deadline was set to phase out the circulation of the old banknotes, the Bank of Uganda is progressively replacing the old series in circulation with new series
banknotes. Currently, only about 20 percent of the old series remain in circulation. At an appropriate time, the Bank will inform the public when the old series will cease to
be legal tender.

The Bank reassures the public of its continued commitment to prudent monetary policy to deliver price stability.

BANK OF UGANDA
MANAGEMENT
August 26, 2011