The journey towards a cashless economy remains uneven. Despite record-breaking growth in digital transactions, the amount of cash circulating in the economy continues to rise.
In the 12 months to June, cash transactions, according to Bank of Uganda, rose sharply, underlining the country’s enduring reliance on physical money.
Bank of Uganda’s Integrated Annual Report 2024/25 shows currency in circulation grew by 9 percent, from Shs8.21 trillion in the 2023/24 financial year to Shs8.98 trillion.
Banknotes alone rose by 10 percent, from Shs7.98 trillion to Shs8.74 trillion, while coins rose by 4 percent to Shs236b due to ‘higher withdrawals relative to deposits,’ even as both inflows and outflows declined by 5 percent, suggesting more people preferred to hold onto cash than redeposit it.
Bank of Uganda also noted that while inter-bank recycling of currency improved, ‘demand for cash is anticipated to remain strong in line with projected gross domestic product growth of 7 percent in the 2025/26 financial year’.
Under the 2017/22 strategic plan, Bank of Uganda had planned to reduce cash in circulation by 2023, but later conceded that achieving a cashless economy would take some time.
Bank of Uganda director for research, Adam Mugume, has previously said that people have to first gain trust in electronic payments, have their money kept within the banking system, and have a wide distribution of points of sale for the cashless economy to hold.
Surging digital payments
Bank of Uganda data shows that cashless payments have sharply expanded.
For instance, the Integrated Annual Report shows that the value of mobile banking transactions rose by 39.4 percent from Shs11.1 trillion to Shs15.5 trillion, while volumes rose by 20.9 percent to 33.7 million transactions.
The growth was largely due to a 6.5 percent increase in active mobile banking users to 2.1 million.
Agent banking recorded massive growth, with transaction values rising by 76.1 percent to shs29.4 trillion, while volumes rose by 50.5 percent.
The number of agents grew by nearly 49 percent, reaching 22,793 across the country, although the share of active agents dropped to 48 percent due to rapid network expansion.
Payment system operators, who facilitate bill payments, bulk transfers, and remittances, reported an even steeper rise, with transaction volumes rising by 29.1 percent, while values rose by 49.3 percent to Shs57.5 trillion.
The trends, Bank of Uganda says, ‘reflect increased use of digital payments and related funds transfer interlinkages across financial sector agents’.
The numbers tell a story of transformation; digital payment volumes are soaring across all channels, but also reveal resilience in attachment to cash.
‘Although digital payment platforms, including mobile wallets, online banking, and fintech solutions, are growing steadily, cash is likely to stay the main retail payment method in the near future,’ Bank of Uganda report notes.
Mixed progress on cashless vision
The National Payment Systems Act, 2020, set out an ambitious path toward a digital-first economy, supported by Bank of Uganda’s e-Payment Strategy (2022/26).
The central bank has since rolled out major projects, including a third clearing session for the Automated Clearing House, the Real-Time Gross Settlement Replacement, and migration to ISO messaging standards, all designed to speed up retail payments and align systems with global best practices.
But while these reforms have improved transaction efficiency, especially for banks and corporate clients, the benefits are slower to reach micro and small businesses.
The cost of data, unstable connectivity, and low financial literacy remain persistent barriers.
Pricy cash system
The shift to a cashless economy would also be important in managing the cost of cash, which Bank of Uganda says remains pricy.
For instance, during the period under review, the central bank processed Shs12.5 trillion in banknote withdrawals and Shs11.7 trillion in deposits, illustrating the scale of cash handling required each year.
Usage of e-payment has lagged due to a number of issues, with consumers concerned over cyber threats.
Bank of Uganda cites the drop in internet banking usage by 6.6 percent, from 0.96 million to 0.9 million active users, partly due to ‘potential user concerns about the cyber threat landscape.’
The slow adaptation is also related to cost, with mobile money fees and withdrawal charges remaining a deterrent for low-income users.
Transaction costs, Bank of Uganda notes, can consume up to 3-5 percent of small payments, making cash the cheaper and more trusted option.
Cash also retains strong cultural and psychological significance in Uganda.
But Bank of Uganda is betting on the Central Bank Digital Currency, which is currently undergoing different stage tests that could be a game-changer in offering a secure, low-cost digital alternative to cash.