Demonetisation date of June 30, 2017 for banknotes of 100 and 500 Rupees of older series |23 March 2017

Central Bank clarifies its decision

The Central Bank of Seychelles (CBS) has clarified its decision to recommend June 30, 2017 as the demonetisation date for the 1998 to 2005 series of the 100 and 500 Rupee banknotes.

In a communiqué released yesterday the CBS said it is the mandate of the bank to ensure high quality banknotes in circulation so as to maintain confidence in the local currency and it is in fulfilling this objective that the bank’s Board of Directors recommended June 30, 2017 as the demonetisation date for the 1998 to 2005 series of the 100 and 500 Rupee banknotes.

The CBS said the aim of this press communiqué is to clarify the reason behind this decision, as opposed to adopting a big bang approach impacting on all denominations and in a much shorter time limit. 

The communiqué reads:

“It has been the view of many stakeholders that an instant change-over to the new series of banknotes would tackle the potential illicit money flows in the country.  Although some countries have adopted this stance, their demonetisation aim may not have been the same as of the CBS.

“With the introduction of the new currency series in December 2016, it was initially anticipated that the older banknotes would be withdrawn from circulation within a two-year timeframe, through natural flow after which, the demonetisation date would be set. However, a faster recall rate was recorded, such that by early January 2017 around 65 per cent and 67 per cent of the 500 and 100 Rupee banknotes respectively, had already been withdrawn from circulation.  This prompted the CBS’ Board to recommend a much earlier demonetisation date while taking into consideration the impact of this decision on a practical level.  The following were factors considered:

• Ensuring that the demonetisation process takes place in an orderly manner without creating undue panic in the financial system and among stakeholders;

• Management of collection, storage and destruction of the previous series’ banknotes;

• Mechanisms to ensure adherence to standards that must be maintained at all times in the cash handling environment;

• Maintaining health and safety standards;

• Costs and budgetary implications;

• Satisfying all stakeholders that all appropriate measures are in place to ensure that cash withdrawn are being processed appropriately and do not return into circulation;

• Recall rates of previous banknote series.

“In light of the above, a phased approach starting with the two highest denominations, was recommended and adopted.

As at March 17, 2017 statistics of withdrawals stood at 88 per cent of the 500 Rupees and 76 per cent of the 100 Rupees; with values equivalent to R682,950,000.00 and R158,370,000.00 respectively for the two banknotes.  Conversely, the remaining denominations trail at a range of 46 per cent to 26 per cent recall rates.

“Although using demonetisation to curtail illicit cash-based transactions was not its primary aim, CBS recognises that demonetisation can support this objective, by drawing out such cash from the unofficial channel into the official financial system to be scrutinised.  On that front, the CBS in collaboration with the commercial banks and the Seychelles Credit Union have established various mechanisms such as recording all banking transactions, requesting for declaration of source of funds and strong monitoring.  This is to ensure that during the process of exchange, necessary measures are taken to adhere fully to the Anti-Money Laundering legal framework.

“In this regard, the CBS works in close collaboration with all necessary partners such as, the Financial Intelligence Unit, the National Drugs Enforcement Agency and the Police.  It is to be noted that after the demonetisation date, the CBS, as mandated by its Act, will be the only institution to exchange any demonetised Seychelles Rupee and will continue to adhere to the highest due diligence process after the demonetisation date of June 30, 2017 has elapsed.  There are limitations on relying on cash to clear the system from illicit money; other mechanisms including the use of electronic channels such as debit/credit cards and online banking platforms, to name a few, can serve as a source of transparency for flagging, detecting and disrupting illegal money transfers.  As such, a more holistic approach to combatting illicit transactions must be adopted and CBS is taking steps to modernise the payment system in that regard.

“Cognisant of its role, the CBS is committed to playing its part in supporting the development of the Seychelles’ economy through a stable and sound financial system, in line with its mission. Taking into consideration all the above, the CBS upholds the demonetisation date of the previous series of 100 and 500 Rupees as June 30, 2017 and is keeping to the phased approach to demonetisation.

“The CBS thanks the public for their usual cooperation and understanding.”