Uganda has stopped the use of the Kenyan currency in an effort to curb its banks from being used to launder stolen money back into Kenya.
Bank of Uganda issued a notice barring currency conversion and repatriation to Kenya stating that all conversions would be done within Kenya.
Kenyan Central Bank Governor Dr Patrick Njoroge had said they would work closely with EAC countries central bankers to prohibit illicit cash from being smuggled through East African.
The Tanzanian Government outlawed the exchange of its currency with that of Kenya as it moves to lock out illicit inflows into the country.
The order came in the wake of the introduction of new banknotes by the CBK in what is meant to mark out corruption and illegal cash flows.
“The Central Bank of Kenya has suspended currency conversion and repatriation of all Kenyan currency to restrict illicit flows into the Republic of Kenya," Bank of Tanzania said.
"Further, the Bank of Tanzania has been advised to freeze CBK currency collection account with immediate effect,” the notice further read.
Avoiding India crisis situation
CBK Governor Patrick Njoroge had insisted on the progressive withdrawal of the Sh1,000 notes to October 1 while the rest of the denominations would operate as legal tender while being phased out.
Njoroge said Kenya wanted to avoid the Indian crisis where a quick withdrawal of demonetized currency led to panic.
Dr Njoroge said they had communicated with “sister” central banks in the region who would work as a fraternity to ensure dirty money finds its way back into the country.