It came like a bolt out of the blue, when the governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, announced that the apex bank had concluded plans to re-design the Naira. Since the announcement, there have been various shades of arguments. In this report, BENJAMIN UMUTEME looks at different perspectives to the discourse.
On October 27, when journalists were invited to the headquarters of the CBN in Abuja for a special press briefing, the last thing they expected to hear was the bank’s decision to release re-designed Naira by December 15, 2022.
Targeting counterfeiters, terrorists, kidnappers
In announcing the plan, Emefiele said the policy was targeted at controlling the currency in circulation as well as curb counterfeit currency and ransom payment to kidnappers and terrorists.
According to him, the integrity of a local legal tender, the efficiency of its supply and its efficacy in the conduct of monetary policy are some of the hallmarks of a great central bank.
He, however, said in recent times, “currency management has faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country.”
“More specifically, as at the end of September 2022, available data at the CBN indicate that N2.73tn out of the N3.23tn currency in circulation was outside the vaults of commercial banks across the country, and supposedly held by members of the public. Evidently, currency in circulation has more than doubled since 2015, rising from N1.46tn in December 2015 to N3.23tn as at September 2022. I must say that this is a very worrisome trend that cannot continue to be allowed.
“Also, in view of the prevailing level of security situation in the country, the CBN is convinced that the incident of terrorism and kidnapping will be minimised as access to large volume of money outside the banking used as source of funds for ransom payment will begin to dry up.
“Indeed, recent developments 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,” he said.
The CBN boss said further that the re-designing of the currency would help to drive a cashless economy and it would be complemented by the increased minting of the e-Naira.
While according to global best practices, it is expected that central banks redesign, produce and circulate new local legal tender every five to eight years, the apex bank governor said that the naira had not been redesigned in the last 20 years.
In a statement later in the day, the regulator explained that the new series of banknotes would be for only N100, N200, N500, and N1, 000, and they would cease to be legal tenders by January, 31, 2023. It also added that deposit fee for transactions below N150, 000 would be waived.
The change
The first time naira notes were changed was in 1973, when the federal government changed from the pounds to naira and kobo. In 1977, there was a change as the government introduced N20 note, followed by another change in 1979, 1984, 1999, 2000, 2001 and 2005, respectively.
Also, in February, 2007, N20 was printed for the first time in polymer substrate, while the N50, N10 and N5 remained in banknotes. Also, N1 and 50 kobo coins were reissued in new designs, and N2 coins were introduced.
On September 30, 2009, the then CBN converted N50, N10 and N5 into polymer substrate. And in September 2010, the CBN issued the N50 polymer banknote. On December 19, 2004, it issued a N100 commemorative banknote.
Arguments
While many saw it as a master stroke, others said it would further weaken the Naira against other major currencies, as even the Finance, Budget and National Planning Minister, Zainab Ahmed, was not aware of the bank’s move. According to the minister, she was not consulted by the CBN on the planned naira redesigning and cannot comment on it as regards merits or otherwise.
In the face of the controversy, President Muhammadu Buhari defended the CBN governor, saying he gave the regulator the go-ahead to embark on the policy.
From economists to the ordinary man on the street, this policy has generated so many arguments.
For some, the move by CBN would further drive up inflation rate, lead to a mad rush to clear the available dollars from both the official and black market, cost the federation money to print new notes, and some have even said that the whole idea of the policy is to empower some people at the corridors of power.
As far as the Edo state governor, Godwin Obaseki, is concerned the policy is political as it is part of the ruling All progressive Congress (APC) tactics ahead of the 2023 elections.
He said: “I am an economist and I can tell you categorically that this policy by the CBN and federal government has no basis in Nigeria’s economy. There is no reason to do this. The move is purely political as there is no urgency in changing our currency.
“The urgency is on how to get food for our citizens to remove starvation and hunger from the land. The urgency is on how to maintain discipline in our monetary policy so that we can manage our foreign exchange rate because we are import dependent.
“They say we should all bring our naira and give it to them because they want to change it for us. Is that our priority now? Does changing the currency reduce the price of food in the market? They say they want to change our currency and the dollar is going higher every day. We can’t even see dollars again.”
However, Uche Uwaleke, Nigeria’s first Professor of the Capital Market, noted that the decision to replace some Naira denominations with new ones would be positive for the economy in the medium to long-term.
“First, although the measure does not amount to demonetization 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,” he said.
Also, a financial analyst, Gabriel Idakolo, noted that the reasons given for re-designing the Naira notes regarding the efforts made to trace ransom payments or curb counterfeiting were germane.
Declaring his support for the move, a former CBN deputy governor, Kingsley Moghalu, commended the apex bank for the move, saying it was capable of reducing high inflation.
He said: “I fully support the Central Bank of Nigeria in redesigning the Naira. If 80 per cent of the bank notes in circulation are outside the banks that is troubling.
“The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender them 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.”
The ex-CBN boss, however, expressed doubts that the step would solve inflation, “because there also are other major reasons for inflation such as the forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on food price inflation.”
According to him, the step, however, has become necessary for national security but the window for implementation is too short.
“This will put a lot of operational pressure on commercial banks and the financial system in general. A 90-day window will have been better, but one can understand the need to avoid interfering with the elections.”
