Finance
With barely 48 hours to the expiration of the window of opportunity for Nigerians to swap their old naira notes for the redesigned ones, and with the insistence of the Central Bank Governor, Godwin Emefiele, to stick to the deadline, Festus Akanbi captures the last-minute efforts of the banking public and the optimism of the CBN governor who also announced new monetary policy rate last week
All things being equal, old naira notes comprising N200, N500 and N1000 will cease to be legal tender in Nigeria in the next two days as the Central Bank of Nigeria insisted it would stick to its January 31st deadline given to Nigerians to change their old naira notes into the redesigned ones.
Based on feedback from bank users, many Nigerians are yet to lay their hands on the new notes amidst speculations that banks are having difficulties loading the redesigned notes in their automated teller machines up till last weekend.
Many bank customers also wondered why despite the declaration by the CBN that it has pumped new notes into banks, some automated teller machines in banks are still dispensing old notes. For instance, the CBN recently accused some commercial banks in Port Harcourt, Rivers State, of refusing to dispense the sum of N4.5 billion redesigned notes distributed to them.
The controller of the Rivers State branch of the apex bank, Maxwell Okafor, who led an enforcement team on the newly redesigned notes to some commercial banks and markets in Port Harcourt was quoted as saying that between Thursday and Friday, the apex bank had disbursed about N4.5billion new notes to commercial banks in the state and wondered why many customers were not getting them.
He expressed worry that some banks in Port Harcourt were frustrating the efforts of the CBN in implementing the disbursement of the new naira notes by hoarding it in their vaults.
“We have been monitoring the dispensing of the new naira note and the impression we had is not encouraging. We have visited some banks, and one was not dispensing the new naira notes. Their ATMs were not functioning, even as early as the time we came. We heard it on good authority that the bank received money from the CBN. Some of these banks received money yesterday and the money is still in their vaults.
CBN Intensifies Sensitisation Efforts
However, as part of efforts to facilitate the circulation of its new naira notes, CBN recently launched a cash swap programme across local government areas in Nigeria.
In a circular addressed to all deposit money banks, mobile money operators (MMOs), super agents and agents, the apex bank said the new arrangement will provide another window of opportunity for Nigerians, especially in the rural areas to change their old stock of currency to the redesigned ones.
The CBN said the old N1000, N500, and N200 notes can be exchanged for the newly redesigned notes and the existing lower denominations (N100, N50 and N20, etc) which remain legal tender.
“The agent shall exchange a maximum of N10,000 per person. Amounts above N10,000 may be treated as a cash-in deposit into wallets or bank accounts in line with the cashless policy. BVN, NIN, or Voter’s card details of the customers should be captured as much as possible,” a statement from the apex bank said.
Counter Arguments
Those who endorsed the apex bank’s January 31 deadline said most of the complaints by Nigerians over the process are borne out of the widespread apathy to the apex bank’s directive on the policy, which they blamed on the tendency to wait until the last minute before responding to deadlines. They warned that as political campaigns reach a fever pitch, it is important the apex bank stick to its deadline before politicians devise means to frustrate the new policy.
However, one of the critics of the policy, the Chief Executive Officer, of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said it would be insensitive if CBN insists on the 31 January 2023, deadline.
According to him, the apex bank needs to be more realistic about the deadline based on the apparent adequacies and logistics gaps. He said if CBN insists on implementing the 31 January deadline, it will infringe on citizens’ fundamental human rights.
As at the weekend, calls for an extension of the deadline also came from the National Assembly which requested an extra six-month period to ensure no one is left out in the transition to the redesigned notes, but the apex bank governor, Godwin Emefiele insisted it will not shift ground.
Emefiele, ABCON Counts Gain of Naira Redesign
However, despite the complaints in certain quarters over the poor circulation of the newly redesigned notes, the Association of Bureaux De Change Operators of Nigeria (ABCON) said the policy has stimulated the stability of the naira at the parallel market.
ABCON President, Aminu Gwadabe was quoted as saying that over the past few weeks, the naira has been largely stable against the dollar — exchanging between N740/$ and N750/$ at the parallel market. “The naira redesign and the security surveillance of the financial system have stemmed the volatile demand pressure in the parallel market.,” Gwadabe said.
The ABCON president said the local currency had traded within a stable band of N750 to the dollar since the introduction of the policy to date.
On his part, Emefiele believed the new policy has led to a slowdown in kidnapping activities.
“Truly speaking, I may be wrong at the margin, but I think kidnapping and ransom-taking have somehow reduced. Security agents are doing a fantastic job.
“I think it (naira redesign) has slowed those people down because they know that if they collect old notes, nobody will collect them. So, it might as well as think of other ways,” he said.
Perhaps what gave traction to the ongoing media frenzy over the new naira notes was the position of the CBN Governor at last week’s media presentation of the decision of the Monetary Policy, where he insisted on not going back on the January 31 deadline.
Following the launch of the new designs on November 23, 2022, by President Muhammadu Buhari, the new currency notes were circulated from December 15, 2022, with both the new and existing notes considered legal tender until January 31, 2023.
Analysts Endorse New Monetary Policy
Meanwhile, financial analysts have thrown their back at the last week’s decision of the apex bank to raise the benchmark Monetary Policy Rate (MPR) by 100 basis points to 17.5 per cent. It also retained the Liquidity Ratio at 30 per cent and Cash Reserve Ratio (CRR) at 32.5 per cent.
A financial advisory firm, Cordros Capital said a moderate tightening was the best option to slow the rate of inflation acceleration without necessarily hurting output. The Cordros Capital’s analysts also believed that the MPC was not convinced that the year-on-year moderation in headline inflation in December 2022.
(-12bps to 21.34% y/y) was enough to celebrate, citing near-term risks to inflationary pressures, including issues like the higher spending relating to the 2023 general elections, lingering PMS scarcity and elevated energy prices, exchange rate pressures, and rising insecurity in the country. According to Cordros Capital, the Committee voted to raise the MPR further by 100bps to reduce the negative real interest rates, signal confidence in the effectiveness of its monetary policy direction to rein in inflation, improve financial system stability, and moderate exchange rate pressures.
The company believed that inflation expectations remain high given the prospects of subsidy removal amid the persistent PMS shortages. “More disturbing is the potential increased spending usually associated with elections, which may boost short-term spending further and keep broad inflationary pressures intact amidst low productivity. While the election spending is likely to have a short-term boost on economic activities, broad inflationary pressures are expected to keep consumer wallets pressured, neutering the impact of the election spending. Accordingly, the near-term growth outlook remains clouded by increased downside risks amid increased production costs. Consequently, we believe the MPC will be walking on tight ropes to maintain a balance between driving down inflationary pressures and ensuring economic growth is not significantly hampered,” the company said in its reaction to the MPC’s decisions.
In her opinion, the Chief Economist and Head of Research, Middle East & Africa, Standard Chartered Bank, Razia Khan in an email response to THISDAY’s inquiry described the CBN’s decisions as anti-inflation which according to her might be preparing the way for an eventual foreign exchange policy liberalisation.
She stated “Despite the tightening effects of the naira redesign policy, the CBN hiked its policy rate by 100 bps – more than the consensus had expected. Our immediate read on this is that the CBN is showing more anti-inflation resolve, and is preparing the way – perhaps – for an eventual FX policy liberalisation that will require a reset to higher market rates. “
All said and done, and given the likely effect on price pressures of planned fuel subsidy reforms, last week’s hike was a step in the right direction, and as suggested by Khan, the broad policy environment needs to be considered holistically, to assess the appropriateness of the policy stance. In particular, the transmission mechanism of MPR hikes – whether they do indeed translate into higher market interest rates – needs to be looked at.
