Stating the Problem

It has never been easy to define poverty.  The (bi-)millionaire who has never enough is psychologically poor; the self-sufficient Karatina farmer who makes do with 3000/- a month for his electricity bill and gets everything else from the soil is on the contrary psychologically rich. Neither, however, is the point.

The point is that the gap between the (relatively small) group of people who have far more than they need, and that of people who do not have enough, has been a permanent feature of the Kenya economy since colonial times and beyond into independence, showing no sign of abating any time soon.

The purpose of this article is to make the causes of the phenomenon obvious to the most casual reader. Remedies will suggest themselves, for that is where the power of the written word ends.

The Money Question

The money question was aired in two previous articles: Lack of Money is the Root of all Evil and Negotiating Loans. Now let us point out its positive and negative aspects.

The M-PESA phenomenon is by far the most positive step in the right direction. Begun in 2007, it is now 25.4 million subscriptions strong, supported by 127,000 agents. Let me repeat that the spectacular boost to the economy has not been due to an increased money supply, but to its increased circulation, which today moves sums in excess of 5 billion Kenya shillings (USD 50 million) daily.

Still on the positive side, public offices and utility companies increasingly accept M-PESA payments.

The main setback remains the legal limit of 70,000/- for one single transaction and twice that for one day. The small cut that the provider takes for each transaction is not a setback but an incentive: for the users to spend their money, for the provider and the KRA not to kill the goose that lays the golden egg.

Banks still regret the loss of all that cash, but it was they who created the gap filled by M-PESA. Its users have not become “banked” as some statistics claim: they make use of electronic impulses more liquid than physical cash: M-PESA money in a cellular phone has virtually no store of value, so that there is no virtue in hoarding it.

But poverty refuses to go away. The raw datum is that Kenya, now 45 million strong, still has 20 million people with no access to either credit or cellular phones, hence stuck to old fashioned cash.

There’s the rub. These people work and produce wealth. The mantra says that “they live on less than one dollar a day”. Of course: they have to, because a) cash is kept down to 5% or less than what is needed, and b) banks add insult to injury by dubbing them “not creditworthy”.

Let’s consider the causes of poverty one at a time.

First: The chronic dearth of cash is entirely due to CBK policy, which prints cash in proportion to the amount of foreign reserves it holds. The rationale of this policy is a mystery that I have never been able to unravel. But it is the only reason why 20 million Kenyans are “living on less than 1$ a day”: they are punished, by being denied liquidity. Jean Baptiste Colbert (1619-1683), Minister of Finance of King Louis XIV, was as aware of the relation between lack of money and poverty as was the Nairobi cyclist who sported LACK OF MONEY IS THE ROOT OF ALL EVIL on the flap of his Black Mamba bicycle 30 years ago. Colbert had put it more scientifically:

It is simply and solely the abundance of money within a state [which] makes the difference in its grandeur and power.”[1]

Jean Baptiste Colbert

Poverty is therefore a direct result of this injustice. But economists, politicians, social scientists and like “experts” routinely link abundance of money with increasing prices, dubbing the phenomenon “inflation”. They do not see that prices increase because of usury, with its relentless compound interest on anything that moves.

Second: Of the 383 billion cash existing in Kenya, 180 or so circulate outside banks. The other 200 are hoarded by banks to give the impression of solvency as remarked in a previous article (Negotiating Loans). The 20million non-banked “poor” Kenyans have to make do with 2 billion (at a flat rate of exchange of 1$ to 100/-).

The solution, however, is not printing shillings to give to the poor, for it would not take long before that cash was diverted where there is already more than enough, leaving the poor where they were before.

The real problem has nothing to do with either the CBK, or the Government, or the banks, or the poor. It has to do with the nature of money as such, which we have been dragging along for two and a half millennia without either the vision or the political will to solve it.

The problem is the dual function of cash as medium of exchange and as store of value. The first function is natural, the second is not only artificial but also parasitical. The two functions are contradictory, i.e. if one acts the other necessarily does not, and vice versa.

This contradiction makes nonsense of the so-called “law” of supply and demand. Supply is inevitably perishable wares: edibles that do not keep, clothing that wears out or goes out of fashion, gadgets that break, get stolen, or hit by the vagaries of the weather etc. Demand, on the other hand, is non perishable money, regardless of the material used to manufacture it.[2]

The owner of non perishable money is therefore free to withhold it; the owner of perishable wares is under compulsion to sell. This basic difference generates usury, the tribute that he who needs money as medium of exchange must pay to whomever hoards it as store of value.

25.4 million Kenyans have escaped this trap by transforming physical cash into M-PESA electronic impulses. It has been a boon for the economy, but not for the 20 million poor still outside the circuit.


No country has ever dared duplicating the experiment of Wörgl, Austrian Tyrol in 1932-33, when a 4000-strong village flaunted full employment and rampant prosperity in the face of the Great Depression. (See Negotiating Loans – Wörgl Certificate)  Could Kenya?

There is talk of reforming the monetary system. But if the contradiction medium of exchange-store of value is left in place, poverty will be consolidated, not alleviated and even less eradicated. Only by thinking outside the box can such eradication be realized.

Following Wörgl, Kenya’s new currency would be forced to circulate. The notes of 50/- to 1000/- would expire at each month’s end unless stamped (or embossed or otherwise marked) against payment of 1% of their nominal value.[3] The purchasing power of the currency unit would remain stable in time. The actual paper note would expire, to be exchanged with a new one at the end of every 12 months.

The quantities involved would be far less than those involved now. With forced circulation one billion shilling would move one trillion worth of goods and services simply by circulating 1000 times. The quantities issued could easily be fine-tuned to price stability: a slight increase in prices would call for withdrawing notes: a decrease, for issuing new ones. One single issuing office monitoring price levels would have all the bureaucracy needed for the task, responsible to the Ministry of Finance and to no one else.

The effect of such reform would be dramatic. Unemployment would disappear, to give way to shortage of labour in next to no time. The cost of infrastructures would be estimated in hours of work instead of sums of money. A structure worth one million would not have to wait until securing the sum, but be completed by 10000/- circulating 100 times in whatever time required. And there would be no financial limit to any structure: the Likoni Bridge, the Lamu Port, 18-metre wide highways, underground parking under all roads, etc.

Banks could no longer create money disguised as “credit”. They could only loan physical money they have at 0% interest, against hoarding it at a negative interest of 1% monthly. And with no limit imposed on such spending, the M-PESA ceiling could be eliminated.

An added benefit is that forced circulation cash would never be available in large quantities, thus making it uneconomical to steal, hoard or counterfeit it. In other words, corruption would be eradicated together with poverty.

The reform could be implemented at county level. As their economies differ, each county would introduce its own local currency to complement the national shilling. The amounts would be paltry ones, but velocity of circulation would propel the local economies into high gear with the same effects aired above.

The effects would be the same with complementary currencies issued at levels of local communities below counties. The phenomenon has taken off in an increasing number of slums. Already legalized by both Government and CBK, such local currencies make it possible to serve the remotest nooks and crannies of the economy. Will they eradicate poverty? There is no telling, but every one of them is a further step towards that desired goal.

Forced circulation and Taxation

Perhaps the most spectacular result of the Wörgl experiment of 80+ years ago was the sudden conversion of the economic operators from reluctant to more than willing taxpayers. Maybe for the first time in history taxes were paid in advance, without waiting for the familiar “last warning” with dire threats for non-compliance. What caused it?

The reform did. Money that loses currency status if hoarded, is kept circulating by spending it. But in the absence of urgent needs, the buck can be passed to the municipal tax department, which only too happily re-spends it in whatever public project is at hand. Wörgl sports to this day the bridge over the river Inn built in 1932 with Mayor Michael’s Work Certificates. The municipality also paved seven roads, refitted the sewer system, public lighting and even built a ski-jump.

The 40 000 official Schillings the municipality had in the bank were utterly insufficient to do any of the things listed above. The Mayor printed 32000 Schillings worth of Work Certificates, but to his surprise the sum actually issued was even paltrier, about 5300 Schillings. By circulating 450 times in 14 months, those certificates moved goods and services for 2.5 million, thus accounting for the foregoing list of infrastructures.

Kenya’s population is 10000 times that of 1933 Wörgl. What it could accomplish with a similar measure is beyond imagining, given a political will that could, but just could, be activated.


[1] By “abundant” Colbert obviously meant “evenly distributed”, not “reserved to usurers and friends”.

[2] Gold buffs insist that “sound” money should have “intrinsic value”. Croesus (d. 546 BC) king of Lydia introduced this superstition, thus distorting monetary thinking. Central banks the world over are reported frantically buying and hoarding gold.

[3] The percentage is not mandatory. It should be neither as high as to discourage acceptance, nor as low as to encourage hoarding.

AUTHOR: Den Anoisíes (Email: [email protected] ; Follow on Twitter: @Den_Anoisies)

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