Naira redesign: Bad deal for criminal entrepreneurs
By Amechi Ogbonna
From December 15, 2022, Nigerians would welcome a newly redesigned naira currency notes which the Central Bank of Nigeria (CBN) said would replace the ones currently in circulation in N200, N500 and N1000 denominations.
Citing currency hoarding, inflation, and counterfeiting as key reasons for its decision, the CBN Governor, Godwin Emefiele had argued that an estimated N2.73 trillion of the N3.23 trillion currency in circulation in Nigeria, representing about 85 percent of the total had remained outside the bank vaults.
In addition to this, Emefiele spoke on the imperative of enhancing the security features of the Nigerian currency in a move that would give fakers of the Naira a bad deal going forward.
Even as the Minister of Finance, Zainab Ahmed attempted to distance the supervisory authority from the project while appearing before the National Assembly, President Muhammadu Buhari’s recent affirmation that the initiative has his backing appears to have taken the debate far beyond the realm of speculation and conjectures to action points.
Consequently, all things being equal, the notes are expected to go into circulation from December 15, alongside the old ones which will cease to be a legal tender by January 31, 2023.
To avoid a possible loss of value that could befall holders of the old notes, commercial banks have on the directive of the CBN have made special arrangements and in most cases extended their business hours to weekends to enable customers deposit their old notes and from December 15 receive new notes.
Although recent reports have that close N80billion held outside the banking system had since been lodged back into the bank treasury, observers believe this is still a far cry from an estimated N2.7trillion said to be in individual vaults outside the financial system.
From the CBN’s analysis of the monetary aggregates, volume of cash outside the banking system has severe implication for policy formulation especially in present inflationary dispensation where too much money is chasing too fewer goods and services.
Two other moral high grounds that tend to justify the redesign of the naira according to economic experts include the high corruption index as established by several global agencies such as transparency international (TI) which insists Nigeria run a corrupt bureaucracy and political system.
According to TI Nigeria’s Corruption Index is expected to hit 28 points. The index offers an annual snapshot of the relative degreeof corruption by ranking countries from across the globe.
It’s believed that huge physical cash in the hands of corrupt political and business elite has badly mitigated the Buhari government’s ongoing war against corruption.
In the opinion of some analysts, the current naira redesign would further take the Central Bank of Nigeria cashless policy initiative a nudge higher by raising the bar for more stakeholders’ onboarding of the Central Bank Digital Currency CBDC.
They had argued that since its launch on October 25, 2021, the CBDC had struggled for recognition and adoption even among the Nigerian business community given commercial banks’ apparent reluctance to buy into the vision behind the scheme.
Meanwhile Nigerians in the public and private sectors have been commenting on the CBN’s decision to roll out new naira notes in the weeks ahead.
Speaking on the issue, the President, of the Nigerian Association of Chambers of Commerce, Industry, Mines And Agriculture (NACCIMA) Chief John Udeagbala said the chamber supports the redesigning and reprinting of Naira notes announced by the Central Bank of Nigeria (CBN).
According to him at a recent press conference, NACCIMA wishes to commend the apex bank for this development aimed at controlling the quantum of Naira in circulation.
NACCIMA is totally in support of redesigning of naira notes because it’s long overdue. This will help our economy and also reduce crime. Though the time is short, the security and the presidency know the reason.
The redesigning of the Naira notes would help the banks to retrieve about N2 trillion that is outside the banking system. Also, banks will be able to give loans to businesses.
When the redesigned notes are released, it would curb crime and the N2tn cash outside the economy would be brought in, making more loans available to the manufacturers.It is going to dry septic tanks and other places where the notes have been piled.
There is no doubt that the measure will significantly help to control currency circulation outside the banking system and enhance monetary policy control as a measure to further control inflation, improve currency security, improve electoral transparency and reduce corruption arising from possible vote trading during electioneering campaign towards 2023 elections and improve use of technology in our banking system and enhance a growing adoption of cashless money transfers.
While we note this useful decision of the CBN, NACCIMA encourages appropriate mix of both monetary policy and fiscal discipline and expenditure by both the government and political gladiators.
It is important that the current government focuses on governance and achieving election promises made during the last elections while current political players should deemphasise vote buying and focus their campaign on socio-economic issues of importance to the ordinary Nigerian.
NACCIMA is willing and ready to work with various agencies of government to achieve economic growth and prosperity of the nation through policy recommendations that will enhance ease of doing business and improve the GDP.
Also reacting, Dr Frank Onyebu, Chairman, Manufacturers Association of Nigeria (MAN), Apapa branch, said “If the CBN governor’s statement to the effect that a very huge percentage of the money in circulation is out of the banking system then obviously the redesign of the Naira, reissue of the Naira or whatever name it’s called, is the right thing to do. The important thing is that a substantial percentage of the currency gets back into the banks.
This initiative, in addition to other objectives, would aim to boost Naira digitalisation, expand the tax net as well as expose monies being held by criminal elements.
But the extent top which, these goals are accomplished would be determined by the effectiveness of the process and the integrity of the officials who would implement it.
Unfortunately there are always collateral damages to any good initiative that come with a cost both to the economy and to the people. The cost of printing new money and the logistics of handling the withdrawal of the existing currency is huge. But most of all, the cost to the people of Nigeria in terms of human suffering could be overwhelming”.
He noted “Based on the experience of India some years ago and our previous experiences here in Nigeria, Nigerians should expect some tough times ahead. People are going to be queuing up in banks for hours on end just to change their currency. Corruption, as usual will take centre stage.”
The CBN would need to be on top of its game and guide the entire process to avoid grounding of the economy. This initiative, if properly managed could boost the economy but if poorly managed would do a lot of damage to our already weak economy
But according to the CEO/ Founder, Centre for the Promotion of Private Enterprises (CPPE), Dr Muda Yusuf, it is rather 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 the 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 in circulation as a percentage of money supply is less than seven percent. Currency as percentage of GDP is less than 2 percent.
The exercise therefore has no monetary policy significance.
Besides it will come with huge logistics costs, and avoidable dislocations to small businesses, most of whom are in the informal sector. The pronouncement on the Currency redesign has worsened the dollarisation of the economy. Our local currency is facing a major crisis of confidence.”
“This is one intervention we can do without. There are more urgent issues demanding the attention of the 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”. He concluded
Also reacting to the debate, Chairman, SMEs Group of the Lagos Chamber of Commerce and Industry (LCCI), Daniel Dickson -Okezie.
One of the advantages of the redesigning of the naira by the CBN is that it will reduce the rate of counterfeiting of the currency.
Presently the counterfeiting of the currency has increased as a result of modern technology which makes it easier for counterfeiters of the currency.
Another economic benefit is that
It will cause reduction of money supply and further tighten money supply. The is one of the measures to use to counter the effects of excess money supply. Nigeria is in a state of hyper inflation and one of the measures to curb hyper -inflation is to curb excess liquidity in the system, which the redesigning of the naira will tend to do.
He said “If it leads to large deposit in banks, it means banks may have more money to lend which may reduce interest rate. That is the economic theory. The more money you lend the more you reduce interest rate. It may have the effect of reducing speculative attacks on the naira in the parallel market which has been the order of the day”.
Financial intelligence will be up as banks will be on the watch out for huge deposits, monitoring illegitimate transactions including ransome taking and terror financing which will be exposed by the exercise.
“It will help to tackle ransome payments which has now become the order of the day in Nigeria.
Today, we all know that a lot of money is starched away by kidnappers and people demanding ransome payments”.
For the disadvantages of the redesigning of the currency, there is this issue of naira value errosion.
The moment the announcement was made, the dollar to naira increased to #800 to a dollar .
That is another consequence of the naira redesign. Customers will rush to the banks, which will affect the bankers because they might not be able to meet up with the rush from customers coming to return their notes
The naira in the interim will lose value because those starching away the currency presently both criminal and those who are into illicit drug business who have so much stored outside the banking system will rush to convert their money rather than coming to deposit them.
They will rush to the parallel market to buy dollars, this will put pressure on the value of the naira. So the naira will suffer in the interim.
“In the next few months, there will be more pressure on the naira and we should be looking at #1000 to a dollar by December 2022.
The new policy will put a lot of operational pressure on commercial banks and the financial system in general.
As a matter of fact, the window for this exercise should have been a 90-day window which would have been better, but obviously because of its likelihood to affect the election cycle, the CBN decided to reduce the period for the exercise.
Hopefully, on the positive side of it, all politicians that have starched trillions of naira ready for rigging elections and other activities have a bad deal with the redesign. But with the policy now, they will be forced to bring those funds. Some will then have to buy dollars and use dollars to bribe voters, which will cost them more.
Meanwhile, Group Head, Transaction Banking, United Bank for Africa (UBA), Osilama Idokogi believes the redesigning of the naira is something that the CBN is pushing. He said “As an institution we report to the CBN, so we would do exactly what has been instructed. There are positive aspects, and so we don’t focus on the negative aspect. To a large extent the country will benefit from it. We are here to support the policy.
