CEM ANALYSIS, ECONOMY | Nigerians have been in a state of uneasiness since the announcement by the Governor of the Central Bank of Nigeria, Godwin Emefiele, on October 26, 2022 informing the nation that the apex bank will be replacing the existing Naira notes of 200, 500, and 1,000 denominations with the redesigned notes.
In the world over, it is a periodic monetary practice to redesign nation’s currencies just as it is legal for the Central Bank of Nigeria to redesign the naira notes. From archive content, the United States of America announced in 1995 that it will be introducing its redesigned $100 note into circulation in the mid-1996. Also, the Bank of Ghana introduced a new 2-cedi coin, as well as new 100- and 200-cedi banknotes in 2020.
In Nigeria, the law empowers the Central Bank of Nigeria to manage the legal tender of the country which include redesigning and ensuring circulation. The Nigerian currency denominations have undergone evolution to the current presentation having been redesigned over time.
However, the reasons to embark on currency redesign and the pace of replacement are major issues to be carefully considered following the distortion it can have on economic activities. The current currency redesign and the hasty pace with which CBN is replacing the old notes with the new notes has created a misbalance between the need for the policy and its impact on daily business transactions that hold the economy.
CBN, upon informing Nigerians of the redesigned notes, fixed January 31st as the deadline after which the old notes seize to be legal tender. By implication, all old notes must get into the banking hall before this date from where they should be sent back to CBN. The flip side of the implication is that before this date, the new naira notes should be expected to be in full circulation through commercial banks so as to pave way for withdrawal of the old notes.
As at 27th of January, 4 days to deadline, commercial banks in Lagos where still issuing out old notes instead of the new notes. They claimed that CBN has not supplied them new naira notes. This is against CBN announcement that enough notes have been supplied to banks to be issued out to customers. Nigerians have been held state of confusion with palpable chaos.
While bank customers are trying to grapple with the push of blames between CBN and DBMs, days ahead presents a likelihood of gloom for both the artisans and the main stream businesses. Petty traders and the artisans represent the bulk of the 45 per cent unbanked in Nigeria. They are expected to experience low patronage due to shortage of naira since they are not able to participate in the online and digital banking space.
No doubt, in the face of shortage of naira notes, the online and digital banking space remain an alternative to transact businesses and is expected to be heavily patronized. Though this option is available for the main stream businesses, its peculiar precarious challenges is sure to weigh on transactions. These challenges include delay in connectivity, unsuccessful cash transfers, trapped funds with payment service providers and others which are due to poor network experienced in Nigeria,
It is therefore certain that economic growth in the first quarter of 2023 will be grossly affected since activities in the informal sector which forms the bulk of the Nigerian economic activities will be weakened. Moreso, the likelihood or certainty of the expected low first quarter performance is also strongly hooked on the usual less fiscal activities since government functionaries are habitually occupied with electioneering campaigns and other political activities.
The above stated repercussion is adequate to label the whole currency redesign and introduction ill-timed. However, reasons provided by CBN for embarking on the project expands the arena for argument by economic commentators trying to weigh them on economic and political scale to establish if the economic losses are politically permissible or justifiable or vis-vasal.
According to CBN, there is a high level of currency hoarding keeping over N2.73tn (85 per cent) of the N3.23tn in circulation outside the vaults of commercial banks. Secondly, CBN said shortage of clean and fit banknotes, with an attendant negative perception of the CBN and increased risk to financial stability need to be addressed. The third reason is the need to discourage ransom payment to kidnappers who will never take transfers for fear of trace and monitor
Truly, in true light of reasonable policy evaluation, the above three reasons are considered as convincing especially when we look at the denominations that were redesigned. But these reasons are not enough explanation for the short notice and rod-wielding implementation approach undermining the economic implications. A fragile economy like ours should not be subjected to such abrupt disruptions following slow recovery pattern we often experience.
If strong economies such as the United States of America implemented a single denomination redesign in about 6 months, we should at least not implement three denominations redesign in 45 days except for other reasons outside economy. US announced the currency redesign in 1995 against mid 1996 implementation. This was more than 6 months notice to prepare citizens ahead of implementation.
But the fourth reason by CBN, attempt to explain the short notice. With the redesign of the Naira notes, CBN intend to control the amount of money in circulation as a measure to control inflation. Public commentators prefer to channel this fourth reason to something else rather than inflationary control. This is because, in true economic scrutiny, Nigerian inflation is not caused by too much money in circulation, it is rather a cost push inflation which is caused by high cost of production which translate to high prices.
Commentators therefore find suiting to attribute the fourth reason to an attempt by CBN to curb vote buying by political aspirants. It is supposed that less cash in circulation will inhibit access to large volume of physical cash usually shared at polling units in exchange for votes.
While this ordinarily is also a good reason, the moral energy to dissuade insinuations of being a possible weapon against a political camp is lacking from the apex bank. Purchase of nomination form by the Governor of Central Bank, Godwin Emefiele under the ruling All Progressive Congress sits this fear and insinuation on a solid ground. It has become difficult to rule out partisanship from economic policies of CBN following that singular act.
In conclusion and in all fairness, currency redesign is a veritable tool to aid and strengthen currency performance. But the haste with which the ongoing is implemented leaves more questions than answers . It is now appearing to be a good meal but very hot and being forced down the throat of Nigerians.