Since the Central Bank of Nigeria (CBN) Governor Godwin Emefiele announced a planned redesign of the naira, there have been divergent views on the appropriateness or otherwise of the policy at a time the economy facing storms. From those in support to those vehemently opposed to it, the CBN has stirred up a debate with the fate of the economy at the centre of it all. Assistant Editor NDUKA CHIEJINA reports
When the Central Bank of Nigeria (CBN) effects the change to the naira by January 31 next year, it will be the 16th time the national currency has been redesigned or changed since 1959. The proposed change will cover both the notes and the coins. It is claimed that global best practice permits central banks to redesign, produce and circulate new local legal tender every five to eight years. The last time the naira had a makeover was 20 years ago.
However, none of the changes has attracted as much interest and debate as the awaited 2023 redesign of the naira. On 26th October, the CBN Governor, Godwin Emefiele, announced that some denominations of the naira will wear new looks. These are the N200, N500 and N1,000 notes. Emefiele said the apex bank was worried over the management of current series of banknotes and currency in circulation, particularly those outside the banking system in Nigeria.
A major source of concern to the CBN is the escalation in scale and sophistication unscrupulous people have abused the naira, from hoarding to counterfeiting the notes. Emefiele said members of the public were hoarding banknotes “with statistics showing that over 85 per cent of currency in circulation are outside the vaults of our commercial banks. To be more specific, as at the end of September 2022, available data at the CBN indicated that N2.73 trillion out of the N3.23 trillion currency in circulation was outside the vault of commercial banks across the country and supposedly held by members of the public.”
What many Nigerians do not know is that the shabby looks of the various naira notes have resulted in the negative perception of the CBN, which in turn has increased risks to financial stability. The credibility of the naira and the ability of the CBN to effectively manage the currency were further put at risk by “increasing ease and risk of counterfeiting evidenced by several security reports.” According to Emefiele, “recent development in photographic technology and advancements in printing devices have made counterfeiting relatively easier. In recent years, the CBN has recorded significantly higher rates of counterfeiting, especially at the higher denominations of N500 and N1,000 banknotes.”
Aside from the attacks on the naira, the CBN said it was compelled to redesign the naira because of the prevailing level of security situation in the country, especially cases of terrorism and kidnapping with perpetrators holding on to what Emefiele described as “large volume of money outside the banking system used as source of funds for ransom.”
By giving the naira a makeover within the timeframe stipulated by the CBN and given the existing laws around depositing of cash in banks, unscrupulous individuals keeping naira notes will be forced to deposit these notes in the banks or forfeit their ill-gotten wealth.
Fall-out of the CBN decision
The apex bank has admitted that the decision to redesign the naira will impact the value of the naira. Almost immediately announcing the proposed naira redesign, the naira plummeted like a wounded bird and it is now hovering around N800/$ in the parallel market. Another consequence of the naira change is the expected rush of bank customers and other members of the public to convert their old currencies to the new within the stipulated time.
With the expected rush to dump their old cash for the new in the banks, the CBN will by extension mop up currency in circulation, thereby applying the breaks on an inflation that looks unstoppable albeit temporarily. To address these fallouts, all Deposit Money Banks (DMBs) currently holding the existing denominations of the currency N200, N500 and N1,000 have been ordered to return these notes to the CBN immediately pending when “the newly designed currency will be released to the banks. Bank customers have also been urged to start paying into their bank accounts the existing currency to enable them withdraw the new banknotes once circulation begins in mid-December 2022.
“All banks are expected to keep open their currency processing centres from Monday to Saturday so as to accommodate all cash that will be returned by their customers.” Bank customers who want to pay-in cash over the N150,000 limit can do so if they agree to pay the charges. For people in the rural areas and those who do not have bank account, the eNaira will be introducing a number of tokens where people in the rural areas who do not have bank account can access bank services without bank account. However, for those carrying cash, they have been advised to “go to the nearest bank branch. They will take your cash and open an account for you for the purpose of returning the naira right into the bank’s vault and then collecting the new naira when we begin to release them.”
Zainab kicks, Buhari and Moghalu respond
The Minister of Finance Budget and National Planning, Mrs. Zainab Ahmed, appearing before the Senate Committee on Finance two days after it was announced that the naira will be changed, told the world that she was not informed of the impending change to the naira prior to the announcement. She also warned that the decision was likely to give rise to unpleasant consequences especially for the Naira. According to her, “as a Nigerian privileged to be at the top of Nigeria’s fiscal management, the policy as rolled out at this time, portends serious consequences on value of naira to other foreign currencies.”
Zainab Ahmed then cried out: “Distinguished senators, we were not consulted at the Ministry of Finance by CBN on the planned naira redesigning and cannot comment on it as regards merits or otherwise.”
However, former Deputy Governor of the CBN Prof Kingsley Moghalu says the CBN does not owe the Finance Minister that kind of information. “The CBN only needs the approval of President Muhammadu Buhari for this particular exercise,” he said. According to him, “there are only three issues on which, in the CBN Act of 2007, the CBN should obtain external authorisation, and only from the President of Nigeria, for its operations: any alterations to the legal tender (the naira); any investment of the Bank’s funds outside Nigeria; and the Bank’s annual report.”
Outside of these, the only approving authorities for CBN operations, he said, “are its Committee of Governors consisting of the Governor and the four Deputy Governors, and the Board of Directors of the CBN, which includes the Governor, the four Deputy Governors, and 7 external members which include the Permanent Secretary of the Federal Ministry of Finance and the Accountant-General of the Federation.”
Moghalu criticised Emefiele for politicizing “the central bank by routinely subjecting its operations to the whims and caprices of the Presidency far beyond what is the appropriate relationship, and compromised the independence of the CBN as a result. That is why the Finance Minister erroneously feels entitled to be informed or consulted.”
He called on the CBN to “focus hard on the implementation of this policy. It will impose huge pressures on the banking system. How can the woman frying akara in the rural area, who keeps most of her cash under her pillow, be aided to come into the banking system under this new policy? There are others as well whose money is outside the banking system for reasons that are not negative.”
On Sunday evening, President Muhammadu Buhari confirmed that he authorised the CBN to carry out the redesign of the naira stressing that “the nation will gain a lot by doing so.”
Speaking in a Hausa radio interview with Halilu Ahmed Getso, and Kamaluddeen Sani Shawai President Buhari said reasons given to him by the CBN convinced him that “the economy stood to benefit from reduction in inflation, currency counterfeiting and the excess cash in circulation.” He said he did not consider the period of three months for the change to the new notes as being short. ”People with illicit money buried under the soil will have a challenge with this. But workers, businesses with legitimate incomes will face no difficulties at all.”
Commenting further, Prof. Kingsley Moghalu said “those with the notes must surrender to get new ones or else it becomes illegal tender after January 31 2023. This is also a way to withdraw currency from circulation, an unorthodox way of tightening the money supply since the country is battling high inflation. The flip side is that people who are holding huge amounts of cash outside the banking system for nefarious reasons will go to the parallel forex market to buy hard currency, putting further downward pressure on the value of the naira as too much naira will be chasing too few dollars.”
He doubts the redesigning of the naira “will solve inflation because there are also other major reasons for inflation such as the forex crisis, which this new move could exacerbate, as well as the impact of the security crisis on food price inflation.” Overall, he thinks “it is a necessary step. I just think the time window for its implementation is rather short. This will put a lot of operational pressure on commercial banks and the financial system in general. A 90 day window would have been better, but one can understand the need to avoid interfering with the elections.”
What experts, others are saying?
In his reaction, the Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, described the planned move by the apex bank as embarking on a profligate exercise and a distraction. His words: “It is difficult to see any compelling value proposition of this currency redesign idea. The cost of such an action would be outrageous and disproportionate compared to the expected benefits advanced by CBN. At a time when the government is grappling with high fiscal deficit, debt crisis, severe revenue crisis and underfunding of many government projects and programmes, it is most inappropriate to embark on such a profligate exercise.
“Currency as a percentage of money supply is less than seven per cent. The exercise, therefore, has no monetary policy significance. Besides, it will come with huge logistics costs and avoidable dislocations to small businesses, most of who are in the informal sector. This is one intervention we can do without. There are more urgent issues demanding the attention of CBN. We have issues with liquidity in the foreign exchange market, the depreciating currency, the recent Moody’s downgrade of Nigeria, soaring inflation and many more. The CBN should save the citizens and the economy the trauma of this currency redesign. It is a distraction we can do without.”
Prof Uche Uwaleke of Nasarawa State University argued that “the decision to replace some naira denominations with new ones will be positive for the economy in the medium to long term. Although the measure does not amount to demonetisation of big currency notes often carried out by central banks to curb black money and corruption, it will go a long way in ensuring that a lot of naira notes circulating outside the banks are crowded in.
“If it leads to large deposits in banks, it means the banks will have more money to lend which may reduce interest rates. I also think it may have the effect of reducing speculative attacks on the naira in the parallel market. I expect that the Financial Intelligence Unit will be on the watch out for huge deposits as a way of monitoring illegitimate transactions. Despite the huge cost involved in changing currency notes, I think it’s time to sanitise the system especially now that electioneering activities have kicked off. However, I think the deadline of Jan 31 2023 is short in view of the number of naira denominations involved, from 100 to 1000. The CBN may consider extending it with time.”
On his part, Mr Gbolade Idakolo, Managing Director/CEO SD&D Capital Management Limited, believes that “the reasons given for redesigning the naira notes regarding efforts to trace ransom payments or curb counterfeiting may be germane but it’s attendant cost could further increase inflationary pressures on the economy. This decision will not positively lift the economy.”
The Conference Of Nigeria Political Parties (CNPP) has commended the Central Bank of Nigeria (CBN) over its decision to redesign the country’s denominations of the naira notes N200, N500, and N1,000 bank notes ahead of the 2023 general elections, saying that only vote buyers will criticise the plan. The CNPP, in a statement by its Secretary General, Willy Ezugwu, explained that only politicians who intended to buy votes and financially induce electoral officials, and those who are ignorant of the import of the policy or beneficiaries of proceeds of crimes, including drug barons and kidnappers, will kick against the move by the CBN.
A group, the Concerned Northern Forum, kicked against the proposed redesign of the naira notes by the CBN. The group, through its spokesman, Abdulsalam Kazeem, expressed concern that “the redesigning of the naira notes will not add value to the standard of living of Nigerians and as such the exercise is unacceptable.”
“The redesigning of the currency will only cost our nation huge sums of money at the expense of tax payers. This is coming at a period when we are borrowing to fund significant parts of our annual budget and another significant part of the borrowing goes to debt servicing and yet the only solution the apex bank could offer is to redesign our currency.”
Kazeem and his group added that “the decision to redesign the naira is obviously to empower some certain individuals, consultant or contractors who are desperate to make something before the end of the current administration. This idea should be rejected by all and sundry at any rate, since it is not in the interest of the nation and it will add no value to the current multiple economic challenges the nation is facing due to bad economic policies of the current central bank governor.”
In the final analysis, many agree that the CBN’s decision to issue new banknotes will reduce counterfeits, bring in the unbanked into the system, and address inflation and money supply. However, if not properly handled, the fate of the naira and the Nigerian economy will be better imagined, especially for participants in the informal sector. There can be crisis of cash shortage, and money supply. The CBN must listen and distil the concerns of many stakeholders particularly on issues of timing, the Bank’s credibility, and an effective alternative channels for unbanked Nigerians to seamlessly transit from using the old notes to the new ones.