Uganda’s currency in circulation rises to Shs8.7 trillion amid economic growth

The amount of currency in circulation in Uganda rose from Shs8.614 trillion in April to Shs8.718 trillion in May, partly reflecting economic growth and increased transactional activity.

Currency in circulation represents the total value of physical banknotes and coins held by the public and financial institutions, excluding the central bank. It is a crucial part of a country’s money supply, showing how much cash is actively used in everyday transactions or held as wealth.

The sole authority to issue local currency notes lies with the central bank. Thus, currency in circulation refers specifically to the banknotes and coins produced and released into the economy for public use.

In nominal terms, Uganda’s economy expanded from Shs203.71 trillion ($53.9 billion) in the 2023/24 fiscal year to Shs226.34 trillion ($61.3 billion) in 2024/25.

When asked about the rise in currency circulation, Dr. Adam Mugume, Executive Director of Research at the Bank of Uganda, explained that currency growth is influenced by several factors. Primarily, the demand for cash grows alongside the volume of transactions in a largely cash-based economy like Uganda’s.

“On the supply side, currency increases when the government disburses cash withdrawn from the Bank of Uganda. However, the Shs103 billion increase between April and May is not a significant change,” he noted.

Despite global financial uncertainties, the Uganda shilling has remained relatively stable against major currencies, earning a reputation as one of Africa’s best-performing currencies.

Dr. Mugume attributed this resilience to effective financial reforms, prudent monetary policy, and steady foreign exchange inflows. Key sources include coffee exports, personal remittances, tourism, and foreign investment. Additionally, the depreciation of the US dollar against major currencies, as indicated by a drop in the US Fed Index, has played a role.

Between May 2024 and March 2025, the shilling appreciated by 6.2%, reaching an average rate of Shs3,653.4 per US dollar. Over shorter periods, it also showed steady gains: 3.6% annually, 0.7% quarterly, and 0.4% monthly.

On a trade-weighted basis, the Nominal Effective Exchange Rate (NEER) remained stable from April 2024 to May 2025 and appreciated by 3% compared to May 2024. This strength against a basket of major trading partner currencies benefits Uganda, which relies heavily on imports, by helping keep the cost of raw materials—and inflation—low and stable.

For the 12 months ending June 2025, Uganda’s headline inflation, measured by the Consumer Price Index, rose slightly to 3.9%, while core inflation remained steady at 4.2% as of May 2025.

By midday yesterday, the official exchange rate quoted by the Bank of Uganda was Shs3,578.14 per US dollar for buying and Shs3,588.14 for selling.

In its April 2025 regional economic outlook for Sub-Saharan Africa, the International Monetary Fund advised against distortive foreign exchange market interventions that cause parallel market spreads. Instead, it recommended tighter and consistent monetary and fiscal policies to ease exchange rate pressures.

The IMF also highlighted the importance of strengthened regional payment systems, such as the Pan-African Payment and Settlement System, which allows settlements in local currencies. This system supports the African Continental Free Trade Agreement by reducing dependency on third-party currencies and making cross-border payments faster, easier, and less costly.