CEM OPINION, FINANCE | Nigerians woke to the news that the old N200, N500, and M1,000 notes were being replaced with the redesigned denominations and a 45 days ultimatum was announced. Following the place of cash in every day transaction and its impact in our survival, there was a swift response and the old notes where being deposited with banks hoping to get the new notes out.
Then it dawned on Nigerians that the new notes were not available as the banks claimed that Central Bank of Nigeria (CBN) had not supplied them with the new notes, a contrasting claim against the CBN announcement that commercial banks had been supplied with enough notes.
Since these controversies, Nigerians have been going through hard time in their daily transactions. Since the banks didn’t have the cash, Nigerians started buying back their money at exorbitant charges from POS operators that manage to get few cash from sources unexplained.
In an elaborate discussion, Chief Abu Agbonoga, a former Banker and a Financial Expert speaks on the whole currency redesign, its objectives, pitfalls, cash crunch and impact on the foreign exchange market. He is the CEO of Ichato Ventures Limited. EXCEPT
What do you make of all these cash crisis Nigerian has found itself in last weeks?
To start with, we know the size of Nigerian economy, it is the biggest economy in Africa. and then we also know the role of the Central Bank which is to put effective control measures in place to enable it have a grip of the economy
All along, all the CBN has been trying to do is to reduce our economy to cashless economy, though there might have been some pitfalls in their approaches. Before the redesign policy, the Quantum of currency outside the bank, in private homes, I understand was over 2.7 trillion and then what we had in the system was far less. So, for CBN to be able to have effective control of the economy, it must find a way of bringing back what we have outside into the system.
Monetary policies have not been effective in Nigeria because the money is not in the system, the same reason the system is not able to respond to the normal economic principles that we know.
There has been history of currency redesigning. The first time Nigeria redesigned its currency was around 1962, that was two years after independence occasioned by the need to change from Bank of England to Federal Republic of Nigeria to reflect our sovereignty status
The second one was around 1968 during the civil war when there was a lot of counterfeiting. The basic thing they tried to do then was to reduce the incidence of counterfeiting
It also follows this time, yes, apart from the fact that you have so much money outside the banking system, part of that money is not even the real money, it is counterfeit.
CBN also want to try to control the incidence of banditry, armed robbery and kidnapping. If Armed robbers and kidnappers know they won’t get cash from their operation, they won’t indulge in it. It is the volume of cash in circulation that encourage all these crimes. Reducing money in circulation will go a long way to reduce crime.
For this, I think the Central Bank of Nigeria means very well for the country for redesigning the N200, N500, and the N1000 notes since that is the denominations people stockpile.
However, the timing is not right and approach is wrong. This is election period, this is not the time it should have be implemented because there is need to allow enough time to promote such policies. There is no way CBN could have printed the volume of note needed in the economy within one month
The government giving 45 days ultimatum amounted to shoot themselves on the leg. They should have allowed the old currency to coexist with the new one so that as time goes on, there will be gradual replacement.
Just as it is happening now in England the pounds have been redesigned and nobody is giving anyone ultimatum, the new and the old pounds are both legal tenders.
More awareness for the cashless policy and currency redesigned is still very low. People still feel that they need cash for their daily businesses, you need to give the bike man cash, the bus driver still need to be paid with cash.
Implementing such policies will become much easier when we get to that level of adequate awareness, when people no longer believe in cash transaction.
The CBN introduced the eNaira last year, and I think there has not been any adequate education on that, a lot of Nigerians still don’t know what it’s all about. If that eNaira policy was working effectively, the impact of this currency redesign would have been less.
In fact, you really don’t need to have an account before you can use the eNaira, just your smartphone. when you set up the app, it will be registered with the Central Bank directly. With that you can transfer money to anybody who has the digital wallet.
The sequence of the two policies was too close. Now, you came up with the cashless policy, people were yet to observe it and then you came up with naira Redesign. These are some of the pitfalls
Some people have said that for CBN to be implementing this policy in a haste, then there could be political undertone. Do you subscribe to that?
Well, I do not know the motive behind what they are doing, but I believe that for them to effect a change within such a time limit is not going to be practicable and that is why people went to court to challenge the policy. For me whether it is political or not, I think CBN’s timing and approach is wrong
This is about the first time Nigeria is going through this. sometimes in 1973 when we changed from pounds to naira, there was enough time for people to adjust to the new change. So, if they’re doing that because of political reasons, then it is rather unfortunate.
Do you think the banks did not have much role to play or they did not play their role well?
Again, it takes us back to what I said earlier. If Central Bank knew that we needed 1 trillion and they made the 1 trillion available, there would have be no room for anybody to abuse the system. Because the printed notes are not enough, so there was room for any abuse of process. The ultimate problem lies with the Central Bank.
What do you think should be the way out now?
it is a very simple thing, let them bring back the old currency to coexist with the new one until they are able to have enough and gradually withdraw the new one.
How is the BDC industry affected by this policy?
The foreign exchange market is a business that is based on speculation, riding on cash availability. You noticed that initially when the policy was introduced, dollar rate went up sharply from about 500 to about 800. It was because people started buying dollars for keep. That happens on the short run.
But on the long run, if this policy is well implemented then Central Bank would have collected all the cash in circulation, then there will not be room for speculation since cash is not available. Then there will be stability in the foreign exchange market.
Also, when the whole currency is mobbed back into the system, interest rate would fall since the banks will have enough to lend.
In the long run too, the CBN will have better grip of the economy for better management.
What will you say about the big gap between the official market and parallel market?
An average business man is a rational thinker being influenced by the forces of demand and supply. The Central Bank cannot supply the volume of foreign exchange to meet demand, so when supply is restricted, then you are bound to have that disparity and the consequent rate increases.
If I am an exporter and I export cocoa and cashew then I bring in this currency, it is my money and there’s no way the Central Bank can force me to sell at a particular rate that is desirable to them, I want to make my own money.
The only thing Central Bank can do is to open up channels, let the money be coming in. Once you have enough of foreign exchange coming into the country, then, definitely, prices will come down and the disparity will close up.
our economy is a mono economy, it is import based, virtually everything we use in this country is imported, people still import table water into this country. Some imported alcoholic drinks into this country cost above N100,000 and this require large foreign exchange to import. Policies need to be put in place to reduce this over dependence on foreign goods
So, which one benefit the BDC Operator, the wide disparity or the Close disparity?
There is a range that BDC practitioners charge which is 2% and that is what is allowed. So, whether it is high or low the 2% remain your 2%. Whether the gap exist or not, is really not going to benefit the trader in any way. The trader is only arbitraging; bringing the buyer and the seller together to earn a commission which is not expected to be more than 2% .
Are you in support of the POS operators’ direct involvement by CBN in the circulation of the redesign notes?
No, I don’t think so. The CBN is not supposed to be dealing with the POS operators, rather it is supposed to deal with the commercial Banks. So, I do not see how the Central Bank will be giving money to the POS operators. It is easier to monitor the commercial Banks than controlling the POS operator.