Among other benefits, the decision of the Central Bank of Nigeria to redesign some denominations of the country’s currency is a crucial step towards bringing back large volumes of money circulating outside the banking system, writes Obinna Chima
Despite divergent views that have trailed recent decision of the Central Bank of Nigeria (CBN) to redesign the N200, N500 and N1,000 as well as the sentiment expressed by the Minister of Finance, Budget and National Planning, Zainab Ahmed on the matter, a great number of analysts believe that the initiative would be positive for the economy.
They maintained that the central bank has both operational and administrative independence to carry out the exercise and only required a presidential approval.
Ahmed had said the CBN did not carry her Ministry along on the plan to redesign and roll out some denominations of the naira.
The Minister, who was responding to posers raised by Senator Opeyemi Bamidele (APC Ekiti Central) during the 2023 budget defence session at the Senate Committee on Finance, had warned that the new notes could have dire consequences on the value of the naira. But she clarified that her position was personal opinion, adding that her Ministry was not aware of the policy but only heard of it from the media.
Bamidele had told the Finance Minister that barely two days after the announcement of the policy by the CBN, it had started having repercussions on the value of the naira when compared to the dollar.
However, President Muhammadu Buhari explained that the decision of the CBN to redesign the banknotes had his support, saying he was convinced that the nation would gain a lot by doing so.
According to the president, reasons given to him by the CBN convinced him that the economy stood to benefit from reduction in inflation, currency counterfeiting and the excess cash in circulation.
He said he did not consider the period of three months for the change to the new notes as being 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.”
The CBN also urged Nigerians to support the currency redesign project which it stressed is in the overall interest and that of the economy at large.
Part of the functions of the central bank is currency issuance and distribution within the country. Central banks are required to redesign, produce and circulate new local legal tender every five to eight years, but the naira has not been redesigned in the last 20 years. On February 28, 2007, as part of economic reforms, N20 was issued for the first time in polymer substrate, while the N50, N10 and N5 banknotes; as well as N1 and 50 kobo coins were reissued in new designs, and the N2 coin was introduced.
Also, on September 30, 2009, the redesigned N50, N10 and N5 banknotes were converted to polymer substrate following the successful performance of the N20 (polymer) banknote. Similarly, the CBN, as part of its contribution towards the celebration of the 50th anniversary of Nigeria’s Independence and 100 years of its existence as a nation, had issued the N50 Commemorative polymer banknote on September 29, 2010; and the N100 Commemorative banknote on December 19, 2014.
The central bank explained that the proposed redesigning of the currency was sequel to the approval of President Muhammadu Buhari and that the circulation of the new banknotes would commence on December 15, 2022.
According to the central bank, the development was also aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
The central bank further insisted that it followed the law and due process to carry out the redesigning exercise, which is 12 years due.
CBN Director in charge of Corporate Communication, Mr. Osita Nwanisobi said the CBN management, in line with provisions of section 2(b), section 18(a), and section 19(a)(b) of the CBN Act 2007, duly sought and obtained the approval of President Muhammadu Buhari in writing to redesign, produce, release and circulate new series of N200, N500, and N1,000 banknotes.
Nwanisobi urged Nigerians to support the currency redesign project, stressing that some persons were hoarding significant sums of banknotes outside the vaults of commercial banks.
He argued that such a trend should not be encouraged by anyone who means well for the country.
He pointed out that currency management in the country had faced several escalating challenges which threatened the integrity of the naira, the CBN, and the country in general, adding that every top-rate central bank was committed to safeguarding the integrity of the local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy.
On the timing of the redesign project, Nwanisobi explained that the CBN had even tarried for too long considering that it had to wait 20 years to carry out a redesign, whereas the standard practice globally was for central banks to redesign, produce and circulate new local legal tender every five to eight years.
While assuring Nigerians that the currency redesign exercise was purely a central banking exercise and not targeted at any group, the CBN spokesman expressed optimism that the effort will, among other goals, deepen Nigeria’s push to entrench a cashless economy in the face of increased minting of the eNaira.
This, he said, was in addition to helping to curb the incidents of terrorism and kidnapping due to access of persons to the large volume of money outside the banking system used as a source of funds for ransom payments.
The CBN director urged Nigerians, irrespective of their status, to support the Naira redesign project as it is for the greater good of the economy.
He said the development was also aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
Also, CBN Governor, Mr. Godwin Emefiele explained that there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation were outside the vaults of the commercial banks.
He said as of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable.
Emefiele also urged bank customers to begin paying into their bank accounts the existing currency notes to enable them to withdraw the new banknotes once circulation begins mid-December 2022. He said all banks were expected to keep open their currency processing centres from Monday to Saturday so as to accommodate all cash that would be returned by their customers.
The CBN governor also said that for the purpose of the transition from existing to new notes, bank charges for cash deposits had been suspended with immediate effect. He added that no bank customer should bear any charges for cash returned/paid into their accounts.
Emefiele explained, “On the basis of these trends, problems, and facts, and in line with Sections 19, Subsections A and B of the CBN Act 2007, the Management of the CBN sought and obtained the approval of President Muhammadu Buhari to redesign, produce, and circulate new series of banknotes at N200, N500, and N1,000 levels.
“So first of all, what we want to do is mop up the N3.2 trillion back into the CBN so we can take control of the money supply. Again, this would help to rein inflation and it would have a positive impact on inflation.”
But the Executive Chairman of the Economic and Financial Crimes Commission (EFCC), Abdulrasheed Bawa, applauded the move by the CBN, describing it as “a well-considered and timely response” to the challenge of currency management, which had negatively impacted the country’s monetary policy and security imperatives.
Bawa said the EFCC, the CBN and some other regulators in the financial sector have worked closely in the recent past to determine how best to stabilise the country’s monetary policy environment.
“It is heart-warming that the CBN has demonstrated courage in taking this bold decision, which I believe will bring sanity to the currency management situation in Nigeria,” he added.
The EFCC chairman called on operators in the Nigerian financial services sector, especially deposit money banks and bureau de change operators, to work within the guidelines provided by the CBN to ensure seamless withdrawal of the old currency.
He warned that EFCC would monitor the process to ensure that unscrupulous players and currency speculators and their cohorts among the BDCs do not undermine the exercise. He also charged banks to be alive to their reporting obligations and not assist unscrupulous customers in laundering suspected proceeds of crimes through their system.
On his part, a former Deputy Governor of the CBN, Prof. Moghalu, commended the apex bank on the proposed redesigning of the naira.
He, however, advocated a 90-day window for the implementation.
He said: “I fully support the Central Bank of Nigeria in redesigning the Naira. If 80 per cent of banknotes in circulation are outside the banks, that is troubling.
“The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender them 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.”
He, however, expressed doubt that the step would solve inflation, “because there also are other major reasons for inflation such as the forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on food price inflation.”
The Conference of Nigeria Political Parties (CNPP) noted that, “only politicians who intended to buy votes” and other equally ill-motivated elements would criticise CBN’s action.”
“Only politicians who intended to buy votes and financially induce electoral officials, the ignorant of the import of the policy or beneficiaries of proceeds of crimes, including drug barons and kidnappers, will kick against the move by the CBN,” it added.
According to the umbrella association of all registered political parties and political associations in Nigeria, “the effort of the CBN to control the amount of money in circulation, where N2.7 trillion out of the N3.3 trillion currency-in-circulation was said to be outside the vaults of commercial banks across the country and are found to supposedly be held by members of the public, is of high risk for the country’s economy and her internal security.
“It is, therefore, obvious that many politicians, especially since 2015, amassed illicit wealth and depleted the national commonwealth to the extent that the currency in circulation has more than doubled since 2015, rising from N1.46 trillion in December 2015, to N3.2 trillion as of September 2022, according to the CBN data.”
“The CNPP is totally in support of the CBN and the CBN Governor, Mr. Godwin Emefiele, on this policy initiative and hereby call on all security agencies, including the Department of State Services (DSS), the Economic and Financial Crimes Commission (EFCC), and the ICPC to redouble efforts to reduce insecurity and electoral corruption by placing all politicians contesting in the 2023 general election on perpetual surveillance,” it added.
Also, a former President and Chairman, Governing Council, Association of Corporate Treasurers of Nigeria (ACTN), Mr. Zeal Akaraiwe, described the decision of the CBN as the solution needed to bring in large amounts of cash into the banking system and enhance the effectiveness of the apex bank’s monetary policies.
“The amount of cash in circulation outside the banking system is very alarming. And the CBN needs to take measures to police it. And redesigning the currency is one of the most efficient ways to achieve that. So, that is what they are doing. And I think, in terms of pulling money into the banking system, this is a good way to go about it.
“This is what the CBN is trying to achieve, and I think this (redesigning the currency notes) is the best way to achieve it,” he added.
In a related development, a group, Ethnic Youth Leaders, in a statement by its convener, Godwin Meliga, insisted that the decision to redesign naira was a welcomed development. It noted that it would help tighten money supply in the face of rising inflation.
