The Central Bank of Nigeria within the outgone week announced a very important but dramatic decision to redesign, produce, release and circulate new series of banknotes at N200, N500, and N1,000 levels. According to the CBN governor, Godwin Emefiele, the President, Major General Muhammadu Buhari(retd.), had already given approval to the new policy of redesigning and issuing the new notes. The currency redesign and circulation has sparked debates in the economic, political and social spheres. This discourse reviews the full gamut of the new policy, its implications for the economy, and its timing.
The first issue that came to the fore following the policy announcement was the disclaimer presented by the Minister of Finance that the ministry is unaware of the policy and just heard about it on radio and television like other Nigerians. The CBN was quick to issue a statement in the direction of its independence and the fact that it had the approval of Mr. President. This discourse acknowledges the independence of the CBN but affirms that government is one, and effective economic governance requires a concert of independent ministries, departments and agencies of government collaborating to achieve results. There must be a convergence of fiscal, monetary, trade and other policies for economic growth and development to be achieved. Even though the dry letters of the law required just the consent of the President, the magnitude of this policy requires that it should have been discussed at the Federal Executive Council, not just for approval but for fine tuning and ensuring that ministries, departments and agencies of government buy into it and play their own role for its success.
It is imperative to recall the justifications for the policy. According to the CBN, currency management has faced several daunting challenges that have continued to escalate in scale and sophistication, with attendant and unintended consequences for the integrity of both the CBN and the country. The first specific reason is the significant hoarding of banknotes by members of the public, with statistics showing that over 85 per cent of currency in circulation is outside the vaults of commercial banks. CBN states that N2.73tn out of the N3.23tn currency in circulation is outside the vaults of commercial banks across the country. It states that the currency in circulation has more than doubled since 2015; rising from N1.46tn in December 2015 to N3.23tn in September 2022.The second specific reason is the worsening shortage of clean and fit banknotes, with an attendant negative perception of the CBN, and increased risk to financial stability. The third is the increasing ease and risk of counterfeiting, evidenced by several security reports.
The fact that the currency in circulation has more than doubled between 2015 to date is the handiwork of the CBN and not that of the public. 85 per cent of the currency in circulation being outside the banking system is a troubling development. But it shows that the financial inclusion policy of the CBN and the banking system has, to a great extent, failed. It is estimated that about 45 per cent of adults in Nigeria do not have a bank account, and according to the World Bank, Nigeria has 4.5 bank branches per 100,000 people compared with an average of 10 per 100,000 globally.
Using the instrumentality of currency redesign as a means of getting currency outside the banking system into the banking system may not produce optimum results. There are questions that need to be addressed as the CBN has asked Nigerians to start paying their old currency into the banks so that they can get new ones as soon as they are ready, on a first come, first to be served basis. How will people, who have no bank accounts, change their money? Will they be allowed to change the same over the counter? If the answer to the poser is yes, will persons who bring in millions of naira in cash to change over the counter be asked to declare the source of their money? Would they likely face money laundering investigations? How soon will such investigations be concluded so that economic life will continue normally considering the magnitude of the sums involved and the number of anti-corruption agencies available?
The CBN was quick to cite S.2 (b) of the CBN Act of 2007, which deals with the objective of issuing legal tender currency in Nigeria, as part of the justification for the exercise. But it appears it is reading that objective in isolation of other objectives of the bank when a community reading of all objectives of the bank would have provided a deeper justification. How will this redesign ensure monetary and price stability or facilitate the maintenance of external reserves to safeguard the international value of the legal tender? The objective of securing monetary and price stability is one, which the CBN has largely failed to achieve. Also, the task of maintaining the value of the naira against other international currencies has been an exercise in futility. If illegal money outside the banking system is targeted, it will definitely put pressure on the value of the naira vis-à-vis international currencies, as the owners will approach the black market to convert their naira to these currencies, and still keep these monies outside the banking system. Furthermore, this policy will not bring down inflation considering the unabating insecurity, poor performance of the economy across all sectors and the fact that our cache of foreign exchange has been decreasing, courtesy of the poorly managed oil sector.
The worsening shortage of clean and fit bank notes, being the second justification, is still a product of the failure of the CBN and the banking system it supervises. This would not have been the case if CBN and the banks had been alive to their duty to gradually withdraw and replace these old and unfit notes. The increasing ease and risk of counterfeiting, evidenced by several security reports, is a credible reason.
The issue of timing is very curious. To unveil a new currency in mid-December 2022 and by the end of January 2023, the old one has ceased to be legal tender is a very ambitious and unrealistic time frame. Just a space of 45 days, during a season of celebration, being Christmas and New Year and at a time of increased commercial activities and holiday period, does not show good sequencing and timing. This exercise needs to go on for a minimum of 90 days of normal time.
What is the cost of this exercise considering the fact that we are borrowing for over 60 per cent of government expenditure? Where will the redesign be funded from? Should it be a high priority at this time when the country is almost bankrupt? If the CBN were to implement this policy from its ways and means by printing money not supported by value, would this not further fuel inflation?
Finally, for a CBN governor who has tasted politics and had to be dragged, kicking and screaming out of the presidential race of the All Progressives Congress, there is a tinge of suspicion that the timing of this exercise may be used to give advantage to the ruling party in the presidential race and as a disadvantage to the opposition. Just delaying access to campaign finances of the opposition in banks, while easing access to the incumbent party a few weeks to the election, will do the magic.
