As the dust from the Central Bank of Nigeria’s (CBN) plan to redesign the local currency settles into the reality of managing the already concluded subject, implementation has risen to the top of the priority list.
Furthermore, the aggregate of opposing viewpoints on the matter appears to suggest that the change was preferable to the repercussions of maintaining the current state of the local currency.
Already, the dust produced by Finance Minister Zainab Ahmed’s opposing position on the CBN’s decision-making process on the topic has settled as soon as it appeared following President Muhammadu Buhari’s support for the apex bank, while other experts also backed the CBN.
After that, the CBN appears ready to implement the Naira shift as banks begin to comply with its directive in preparation for a smooth transition to the new currency note.
Last weekend, all commercial banks opened their doors to customers, which may have aided some depositors in beginning the process of matching their cash holdings with the planned withdrawal of old Naira notes in the coming weeks.
Some banks have already reported growing cash deposits, however the sources of those deposits remain unknown.
There is also no sign of a rush or banking hall surge, which would have been expected based on the experience of 39 years ago when the last Naira change occurred.
According to bank officials, such a surge is unlikely given the new banking environment, which is heavily reliant on cashless transactions. They anticipate that as the process of implementing the currency redesign gains traction in the coming weeks, more transactions will take place through electronic channels.
The bankers told Vanguard MoneyDigest that they do not expect much of a challenge because they are afraid that criminals will besiege the banking halls with large amounts of cash that they have kept away due to the nature of the source of the money.
Their task, according to them, is merely to take all the money and properly document the transactions in preparation for complete disclosures whenever they are required.
Buhari stated in a statement issued by his Senior Special Assistant on Media and Publicity, Mallam Garba Shehu, that he is confident that revamping the currency will benefit the country greatly.
In a Hausa radio interview with Halilu Ahmed Getso and Kamaluddeen Sani Shawai, Buhari stated that the CBN’s explanations convinced him that the economy would gain from lower inflation, currency counterfeiting, and excess cash in circulation.
He stated that he did not believe the three-month transition period to the new notes to be short.
According to him, “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.”
However, the Bank Customers Association of Nigeria, BCAN, believes that the time limit for withdrawing old currencies was too short. As a result, they have petitioned the CBN to extend the deadline for surrendering old notes.
Speaking to Vanguard MoneyDigest last week, the President of BCAN, Dr. Uju Ogubunka said: “Redesigning Naira, from time to time, and as the need arises, is the responsibility and within the powers of the CBN.
“The reasons adduced by CBN are genuine and are supported by facts we all know. So, we in BCAN have no problem with the intention/plan of CBN. All we demand is that the exercise should be carried out at little or no inconvenience to the banking public and the generality of Nigerians. BCAN members will cooperate.
“However, timeframe for the exercise should be scrutinized to ensure it is adequate.
“All those who will render services in the implementation should consider it a serious national assignment and thus be very, very dutiful.
“CBN should try to foresee likely challenges that may arise and create response options. There is hardly any doubt that it will be successful.”
CBN provides additional insight
In response to the Finance Minister’s position, the CBN stated that due process was followed in arriving at the Naira redesign initiative, including getting President Muhammadu Buhari’s consent.
Furthermore, the apex bank assuaged fears regarding the cost of printing the new notes, stating that they will be printed in the country and within the central bank’s budget.
According to a statement issued by the CBN’s spokesman, Mr. Osita Nwanisobi, the apex bank emphasized that it is a highly thorough organization that follows due process in its policy activities.
According to Nwanisobi, the CBN’s management, in accordance with Sections 2(b), 18(a), and 19(a)(b) of the CBN Act 2007, duly sought and obtained the President’s, Major General Muhammadu Buhari (retd.) written approval to redesign, produce, release, and circulate new series of N200, N500, and N1,000 banknotes.
However, urging Nigerians to support the currency reform project, he stated that it is in the best interests of all Nigerians, and that some people were hoarding large amounts of banknotes outside commercial bank vaults. This trend, he believes, should not be promoted by anyone who cares about the country.
Meanwhile, economists and financial experts have stated that currency redesign is a good policy to pursue if properly managed.
David Adonri, Vice-Chairman, Highcap Securities, while affirming the independence of the CBN in taking the currency change decision, also supported the reasons given by the apex bank in taking the decision.
“In this particular situation, the grounds for the CBN changing currency are valid, but there is no reason not to bring the Finance Ministry along for them to be prepared for the shift,” he said. When the monetary authority is independent, as we advocate, the Central Bank does not even need authorization from the President to engage in monetary activity.
“Independence of a central bank is essential so that monetary policy will not be influenced by political expediency.”
Why Naira redesign is necessary — Moghalu
Commenting on the issue, a former Deputy Governor of the CBN, Kingsley Moghalu, said that the decision of the CBN to redesign the naira notes is a ‘necessary step’ for the good of the economy.
Moghalu explained that the CBN is trying to gain control over the money supply in the economy.
“I fully support the Central Bank’s redesign of the Naira,” he said. “If 80% of banknotes in circulation are outside the banks, that’s troubling. The CBN obviously wants to force all those notes back into the banking system. 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.
“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.”
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.”
