Something is shifting in Kampala, and it is not just the traffic on Kampala Road. The Bank of Uganda is making one of its most deliberate moves yet to drag the country’s economy away from its deep, stubborn reliance on physical cash , and the pressure is now being felt from mobile money agents in Kireka all the way to corporate treasuries in the city’s gleaming bank towers.
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Uganda’s central bank has moved to cap cash withdrawals as part of a broader strategy to accelerate the country’s transition to digital payments, a push that sits at the center of the government’s ambition to build a modern, traceable, and inclusive financial system. The directive is not happening in a vacuum. It arrives in the middle of a years-long tension between a state eager to digitize commerce and millions of ordinary Ugandans who still trust cash far more than they trust any app on a phone screen.
To understand why this matters, you have to look at the numbers. Uganda’s National Payment Systems Act of 2020 set out an ambitious path toward a digital-first economy, backed by the Bank of Uganda’s e-Payment Strategy covering 2022 to 2026. The central bank has since rolled out major infrastructure projects ,including a third clearing session for the Automated Clearing House, a Real-Time Gross Settlement Replacement system, and migration to ISO messaging standards ,all designed to speed up retail payments and align Uganda’s financial plumbing with global best practices. That is a lot of policy machinery being thrown at a stubborn problem.
The stubborn problem, of course, is cash itself. Despite record-breaking growth in digital transactions, the amount of cash circulating in Uganda’s economy continues to rise. The Bank of Uganda’s Integrated Annual Report 2024/25 shows currency in circulation grew by 9 percent, from Shs 8.21 trillion to Shs 8.98 trillion, while banknotes alone rose by 10 percent, a sign that more people preferred to hold onto cash rather than redeposit it. If that sounds like a paradox digital booming while cash also booms, welcome to the reality of a dual-speed economy.
The cash withdrawal cap is, in essence, a nudge. A firm one. By making it less convenient ,and potentially more costly to pull physical money out of the financial system, regulators are betting that Ugandans will keep more of their money circulating digitally. It follows a familiar playbook that African central banks have reached for before: Egypt, Ghana, Kenya, and most notably Nigeria have all tried variations of this strategy, with wildly different results. MTN Uganda, which holds an estimated 52 percent of the mobile money market share, reported strong performance in its fintech segment, with active mobile money subscribers rising 6.5 percent to 14.7 million in the year ending December 2025 — proof that the appetite for digital financial services is real, even if the transition is bumpy.
But here is where the story gets complicated, and where critics of the Bank of Uganda’s approach are most vocal. Capping withdrawals while simultaneously taxing them is a contradiction that consumer advocates say the government has so far refused to fully reckon with. Uganda’s government currently levies a 0.5 percent excise duty on withdrawals, a 15 percent excise duty on telecom service fees, and a 10 percent withholding tax on agent commissions. For low-income Ugandans , the very people the digital economy is supposed to liberate, these cumulative costs make digital transactions significantly more expensive than simply handing over physical notes.
The sensitivity of the market to these costs was brutally demonstrated back in 2018, when the government initially introduced a 1 percent excise duty on withdrawals. The sector saw an immediate decline in usage as customers shifted back to cash. Although the tax was later halved to 0.5 percent, the cost barrier remains a deterrent for the 23 million transactions occurring daily in the country. The lesson was written in shillings: if digital is more expensive than physical, people will choose physical every time.
Sending and withdrawing one million shillings through mobile money can cost a user 20,000 shillings in combined fees and taxes. A taxi to deliver that same cash in person between Kampala suburbs costs approximately 6,000 shillings. That math is not lost on the people the policy is meant to serve.
There is also a macro story playing out here that connects Uganda to a continent-wide reckoning. Remittances to Uganda hit a record $2.5 billion last year, a significant jump from $1.5 billion in 2024, and mobile money now accounts for 61 percent of all inbound remittances, a figure that would have seemed fantastical just a decade ago. The digital rails are clearly working. The question the Bank of Uganda is wrestling with is whether restricting the off-ramp capping withdrawals, will keep more of that money circulating digitally, or whether it will simply frustrate users into finding workarounds.
When money is withdrawn into cash, its visibility to the financial system is reduced and the efficiency gains of digitisation are partially lost. That logic drives much of the central bank’s thinking. Regulators want to see money flow through trackable, taxable, inclusive digital channels , not disappear into wallets and mattresses. And from a development economics standpoint, that ambition is entirely defensible. Digital transactions build credit histories. They create paper trails that help small businesses access loans. They make government payments more transparent. They connect rural farmers to markets they could never reach with a fistful of notes.
The Bank of Uganda is also watching its peers closely. Uganda’s first Central Bank Digital Currency (CBDC) is currently being piloted, deployed on a permissioned blockchain and backed by Ugandan treasury bonds, with the digital shilling accessible via smartphone and USSD to enable over 40 million people to transact using secure, mobile-first digital currency. If the CBDC gains traction, a big if, given that similar experiments across Africa have had mixed results , it could render the cash withdrawal debate largely moot. Why queue at a mobile money agent if the Bank of Uganda’s own digital shilling is right there on your handset?
The harder question ,and the one that development economists keep raising, is whether Uganda is sequencing this correctly. Previous attempts to tax cash usage caused mobile money usage to drop, raising fears of pushing transactions into informal channels and hindering financial inclusion. Experts continue to urge a focus on widening the tax base through income taxation instead, seen as a fairer path to sustainable revenue without burdening transactions. Capping withdrawals while making withdrawals expensive is, in their view, a double squeeze on the same pressure point — and the people squeezed hardest will be those at the economic margins.
Uganda’s Treasury Secretary Ramathan Ggoobi has signaled that the government intends to undertake further analysis on how to incentivize a gradual shift away from excessive cash transactions toward more transparent and formal financial channels language that is measured and cautious, suggesting that Kampala knows it is threading a needle. Push too hard, and cash demand spikes. Move too slowly, and the digital infrastructure investment yields no behavioral change.
What makes this moment feel genuinely pivotal is the sheer scale of the transformation already underway. The value of mobile banking transactions in Uganda rose by 39.4 percent to Shs 15.5 trillion in a single year, while volumes rose by 20.9 percent to 33.7 million transactions. Those are not marginal gains. They represent a fundamental rewiring of how Ugandans relate to money. The Bank of Uganda’s cash withdrawal cap is, in this light, less a radical intervention and more an attempt to lock in and accelerate a shift that is already happening organically , to give it a regulatory push before old habits reassert themselves.
Whether it works will depend on something the central bank cannot legislate: trust. The Bank of Uganda’s director for research 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 truly take hold. Trust is not built by caps and levies. It is built by systems that work when the power goes out, agents who are present in every trading center, and fees that do not make digital feel like a luxury. Uganda’s policymakers know this. The open question is whether the regulatory timeline is moving faster than the trust-building one.
For now, millions of Ugandans are watching and adapting , some embracing the shift, others quietly withdrawing just a little less cash than they used to, just to stay on the right side of a limit they are still trying to fully understand. That is, perhaps, exactly what the Bank of Uganda is counting on.
