The media briefing by the Central Bank of Nigeria on October 26, 2022, was preeminently crucial. It ranks like no other in years in the bank’s monetary policy decisions. It took many Nigerians by surprise, including the business community. None of the journalists present knew beforehand what their Chief host had in mind. However, for many Nigerians, this season has become increasingly worrisome, to the extent that every policy announcement is perceived from the prism of poisoned politics. It should not be so. The danger in such jaundiced attitude of some people with little knowledge of bank management is that it distracts many from seeing clearly the benefits of such policy from the monetary authority. That’s why the announcement of new naira notes by the Central Bank of Nigeria was like a gut punch to some.
Flanked by some Deputy Governors of the Bank, CBN Governor, Godwin Emefiele announced that new Naira notes in the variation of N200, N500 and N1000 will come into effect December 15, 2022. Both the new and existing banknotes will remain legal tender and circulate together until January 31, 2023 when the existing currencies will seize to be legal tender. 1984 was the last time such redesigning of the nation’s currency was carried out. Expectedly, reactions have been thick, fast, and even furious. Emefiele said the apex bank had in line with provisions of Section 2 (b), section 18(a), and section 19(a) (b) of the CBN Act 2007, duly sought and got the approval of President Muhammadu Buhari in writing to redesign, produce, release and circulate the new banknotes. Unknown to some, the aim of redesigning the new naira notes is also in line with the goals of the Monetary Laundering Prevention Prohibition Act 2022, which criminalises the conduct of cash transactions above a certain threshold. Emefiele explained the reasons behind the redesigning exercise.
These are the facts: Ideally, the change in the features of a nation’s currency is recommended within the interval of five to eight years. That’s why the Bank of England maintains that the features of the Pound make it very difficult to counterfeit. In both England and the United States, the redesigning is done within a span of 5- 8 years. This is a global banking requirement. Dragging toxic politics into the new naira notes as the Governor of Edo state, Godwin Obaseki, and others have tried to do, is to miss the point. On the contrary, the redesign of the naira notes will deepen Nigeria’s push to entrench a cashless economy in the face of increased minting of the e-Naira, and also help curb the incidence of terrorism and kidnapping due to the access of persons to the large volume of money outside the banking system used as a source of funds for ransom payments to bandits. Here are the reasons given by Emefiele. He says the policy is aimed at checking the increasing ease and risk of currency counterfeiting. Several security reports have validated this fact, and the increased risk it poses to financial stability, as well as the worsening shortage of clean and fit currency with the attendant image problem for the CBN.
Beyond that, there is significant hoarding of the naira notes by the public. Statistics available to the CBN show that about 85 percent of the currency in circulation is outside the vaults of commercial banks. As of September 2022, a total of N3.2trn was reported to be in circulation, of which N2.73trn was outside the vaults of the banks. This is not good for the economy. Few days after the new policy was announced, the CBN appears vindicated, as wealthy individuals and organisations are reported to be rushing to the banks to deposit huge cash stashed away. This will positively affect monetary policy and money supply. It will also, in the course of time, reduce the demand pressure on foreign exchange. Those who expected President Buhari to disown the CBN Governor were disappointed as the President immediately threw his support behind the policy. In a statement by Senior Special Assistant (Media), Malam Garba Shehu, the President said he’s convinced that the nation will benefit a lot from the new banknotes. He also says the economy stands to gain immensely from the new banknotes as it will help tame inflation, currency counterfeiting and excess cash in circulation.
Looking back and forward, it was important that Emefiele dutifully made reference to the relevant sections of the CBN Act that require seeking and getting the approval of the President before such an important monetary policy decision is taken. This is because, soon after the announcement of new naira notes was made, the Minister of Finance, Budget and National Planning, Zainab Ahmed threw the “bomb”, claiming that her office was not consulted before the CBN took the decision. The truth is that the CBN does not need to consult the Finance Minister. Indeed, there are only three areas in the CBN Act 2007 on which the CBN should, of necessity, obtain external authorisation from the President. These are: in respect to any alteration to the legal tender (the Naira). Two, in matters relating to any investment of the bank’s funds outside the country, and third, the bank’s Annual Report.
Outside these three areas, the only approving authorities that the CBN needs to consult for its operations are the Committee of Governors, comprising of the CBN Governor, four Deputy Governors of the Bank, and seven external members, which include the Permanent Secretary of the Ministry of Finance, and the Accountant-General of the Federation. For good measure, the Perm Sec of the Finance Ministry is on the Board of the CBN. All of this throws out the claims of the Finance Minister during her appearance before the National Assembly Joint Committee on Finance, almost two weeks ago. The assurance by Emefiele that the CBN will in good faith, and at all times, monitor closely what happens in the financial system, especially the impact on the economy, and ensure the achievement of the bank’s objectives in the overall interest of the country and the citizens, is key to the success of the policy. It will also avoid the current needless panic in the parallel market that has seen the naira in a free fall in recent days. But that will be over with time. It’s also important that the apex bank has made it clear that for the purpose of the transition from the existing to the new notes, bank charges for dash deposits should be suspended with immediate effect, as no customer will bear any charges for cash returned or paid into their accounts. It’s vital to ensure compliance to this directive.
Anyone conversant with bank management should know that currency management is a fundamental function of the CBN as enshrined in Section 2(b) of the CBN Act. As a result, the management of currency will continue to grow in both scale and sophistication with unintended consequences for the monetary authority and the country. As the CBN Governor rightly observed, developments in photographic technology and advancement in printing devices have made counterfeiting relatively easy. The apex bank has recorded higher rates of counterfeiting and hoarding, especially in the denominations that will be redesigned. In other words, currency management if not properly handled, could threaten the integrity of the nation’s currency.
Therefore, the support of the public is critical in the weeks and months ahead. My take is that the CBN is on the right path. As the Chairman of the Economic and Financial Crimes Commission (EFCC), Abdulrasheed Bawa said, the move by CBN is a bold one that will bring sanity in the management of the naira. It is also expected to give the exchange rate a boost. The benefits are waiting to be tapped, as it will impact positively on the treasury situation if the monetary authority will leverage on the inherent opportunities and intelligence. But, as the International Monetary Fund (IMF) has advised, there is need to apply caution in the implementation of plan. This is necessary to avoid missteps that may undermine confidence in the financial system. Confidence is the cutting edge in the financial services sector.