Interrogating Naira’s Patronage

Interrogating Naira’s Patronage


In this piece, James Emejo assesses Nigerians’ attitude to the Naira following its proposed redesign by the Central Bank of Nigeria  and concludes that the resulting exchange rate disparity at the parallel market is mainly self-inflicted

The October 26, 2022 decision by the Central Bank of Nigeria (CBN) to redesign the Naira has continued to elicit mixed reactions from the public. While some believed that the objectives were politically-motivated, a larger percentage of Nigerians believed it is a welcome development that is long overdue.

The central bank had insisted that the redesigning project was only a routine exercise adding that it seeks to also address the prevailing currency counterfeiting, terrorism financing, and hoarding among others. In fact, the proposed currency redesign programme is likened to using a solution to address several abnormalities in the economy.

 The CBN Governor, Mr. Godwin Emefiele had recently announced the bank’s resolve to redesign, produce, and circulate new series of banknotes including N200, N500, and N1,000 denominations following the express approval by President Muhammadu Buhari.

The project will commence with the circulation of the new banknotes on December 15, 2022.

Reasons for the Redesign

Emefiele had equally explained that the decision was 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.

Other reasons adduced for the exercise were the need to control currency in circulation – with 80 per cent of money outside the vaults of commercial banks.

The CBN governor noted that 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.

The scenario is particularly troubling given the potential for a high rate of inflation and foreign exchange challenges.

The apex bank boss also explained that the move was aimed at tackling vote-buying by politicians given that inflation is often spiked-off during the electioneering period.

There had been concerns that except there was a bold policy direction,  the forthcoming general elections could provide monetary authorities with a major headache given the proposed election spending.

In addition, the naira redesign project was aimed at tackling terrorism financing which remains a growing security concern in the country.

The currency redesign project particularly came at a period when Nigerians are clamouring for financial regulatory interventions to make it difficult for kidnappers to seek ransom from victims. 

The currency redesign effort could be seen as an attempt by the CBN to address a myriad of problems using a single intervention.

According to Emefiele, there had been persistent concerns over the management of the current series of banknotes as well as currency in circulation, particularly those outside the banking system in the country.

He said although the global best practice is for central banks to redesign, produce and circulate new local legal tender every five to eight years, the naira had not been redesigned in the last 20 years.

The CBN boss said, “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 in inflation and it would have a positive impact on inflation.”

He further explained that the new and existing currencies shall remain legal tender and circulate together until January 31, 2023, when the existing currencies shall cease to be legal tender.

Currency Mopping Records Early Successes

In a development that showed that the objectives of the currency redesign programme were achieving the intended impact, earlier reports had suggested that within the first two weeks of Emefiele’s policy announcement, directing the existing naira notes which are stashed in warehouses and underground to be returned to the banks to be exchanged with the proposed new banknotes, about N52 billion cash was deposited into commercial banks.

The figure had since been on the increase, effectively mopping the huge sums of money that are outside banks’ vaults.

Unpatriotic Attitude and Naira’s Depreciation

Expectedly, the rush by some unpatriotic Nigerians and mostly criminal elements to bypass the system following the currency redesigning move had piled pressure on the local currency.

Rather than return their illicit money to the banking system and fearing the possibility of being nabbed by anti-graft agencies, some corrupt Nigerians have resorted to exchanging their Naira denominations for the US dollar.

This has, in turn, affected the value of the naira, especially in the black market, which, however, accounts for less than five per cent of the foreign exchange market.

Emefiele had severally clarified that the black-market rate cannot be used to determine the real value of the naira.

Although critics have blamed the CBN on the depreciation following the move to redesign the naira, several analysts believe the impact on the local currency is only temporary – stressing that the Naira will first firm up against the dollar as soon as the currency redesign project is completed.

But the development also demonstrated the unpatriotic zeal on the part of Nigerians towards their currency.

Experts have argued that the value of the local currency is intrinsically tied to how it is received or accepted by its citizens.

In order words, if Nigerians don’t demonstrate their love for their local currency, the latter is bound to receive a hit.

This is particularly so as witnessed by the conscious dollarisation of the economy in recent times before regulatory interventions by the CBN.

The CBN has continued to appeal to Nigerians to support the currency redesign project which is in their overall interest and the economy at large, stressing that they owe it as a responsibility to ensure that the Naira remains strong against other currencies of the world.

The Chief Executive, of Global Analytics Consulting Company Limited, Dr. Tope Fasua, said achieving price stability and exchange rate parity requires the cooperation of all stakeholders and not only the central bank.

According to him, of the first steps to achieving a strong local currency is by the Nigerians developing a love for the naira.

 Fasua said the value of the naira was tied to patriotism and nationalism stressing that a “lot of the value of your currency is made up of perception actually – what do people think about the currency? If those who hold the currency don’t have confidence that currency is in trouble”.

According to him, the local currency remained an embodiment of the people as well as fundamental to the economy, pointing out that the US dollar had remained strong partly because it is protected from losing its value.

He said Nigerians should shun the self-fulfilling prophecy, which states that the local currency is a reflection of what citizens say about it. He further explained that merely speculating that Naira would crash could lead to its depreciation.

In an exclusive chat with THISDAY, Fasua said, “But even the rate is correcting. It’s unfortunate how we have become. Some people are unpatriotic and oftentimes work hard to ensure that our economy has a serious problem because of political and sometimes ethnic animosities.

“I think Nigeria must be that country where people decide to hurt themselves for base sentimental reasons. The currency redesign is a routine central bank duty. There is a department in Central Bank set up for that purpose just like they have bank supervisors, monetary policy, and so on.

“For 17 years we have done nothing with our currency. Now, we want to do something and all hell broke loose. Why? Redesigning a currency to tackle our many currency forgers has nothing to do with the value of the currency.”

He said, “Only criminals will rush to convert to dollars and let the authorities deal with that. The entire saga has also brought to the fore the folly of trading dollars in the streets and I hope the government does the right thing this time.

“All dollars must be traded with documentation in banks and BDCs only. All else is illegal and examples must be made. We have become lawless in Nigeria.”

On his part, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said the solution to the increasing exchange rate disparity is to make the naira scarce after the redesigning programme.

Also, Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, predicted the current steep naira depreciation will probably stabilise by Q1 2023 once there is a clearer indication of how the new redesign and cashless policy will be implemented.

In the same vein, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, however, pointed out that the inflationary pressures the redesigning move has created may “stay with us for a long time if the CBN does not evolve economic programmes to lift the economy”.

He said the CBN redesign of the naira is an attempt to recover cash in circulation which is not within its control.

He said, “The new security measures in the newly redesigned naira notes will make it difficult for counterfeiting and also cause some problems for terrorists and traffickers in the short run but they could recover after a while back to business as usual.”

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