In this piece, James Emejo x-rays the several opportunities that the Central Bank of Nigeria’s currency redesign and cashless policy present to ordinary Nigerian and the economy in general.
The October 26, 2022 policy decision by the Central Bank of Nigeria (CBN) to redesign the N200, N500 and N1,000 denominations, and the subsequent announcements including the cash withdrawal limit – have continued to generate reactions.
However, with President Muhammadu Buhari’s approval of a 10-day extension of the expiry date of the old naira notes from January 31, 2023, to February 10, 2023, it is expected that more bank customers would take advantage of the window to return all their old banknotes.
Announcing the deadline extension yesterday, after a meeting with the President in Daura, Katsina State, the CBN Governor, Godwin Emefiele, said the extension of the deadline was to allow for collection of more old notes legitimately held by Nigerians and achieve more success in cash swap in our rural communities after which all old notes outside the CBN losses their legal tender status.
Considering the timing of the policies – being an election year – some Nigerians particularly politicians believed that the apex bank’s move was targeted against certain individuals and have refused to see beyond their noses that the actions are in the best interest of Nigerians and the economy if the country must address the current gale of insecurity, corruption and economic sabotage among other actions of some privileged elites who continued to take advantage of a dysfunctional system to short-changed the country.
If anything, there have been early successes of the CBN intervention as the monetary policy committee (MPC) of the central bank recently affirmed that the various policy interventions of the bank had led to a reduction in inflation after months of an uptick in the headline index.
Also, the cashless policy has led to a reduction in banditry and kidnappings which were rampant in the recent past.
The CBN Governor, Mr. Godwin Emefiele, while announcing the apex bank’s resolve to redesign the naira, pointed out that the move was sequel to the approval of President Muhammadu Buhari.
Specifically, he noted that the move to redesign the currency 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.
Emefiele, further 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 was outside the vaults of the commercial banks.
According to him, 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 as this has the potential to harm monetary policy actions, further leading to higher inflation and currency speculation, thereby exposing vulnerable Nigerians to further economic hardship.
He said all banks were expected to keep open their currency processing centers from Monday to Saturday so as to accommodate all cash that would be returned by their customers.
The CBN governor also said 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.
The CBN boss emphasised that in the meantime, the present notes remained legal tender and should not be rejected as a means of exchange for the purchase of goods and services. He reassured the public that the CBN would continue to monitor both the financial system, in particular and the economy, in general,
· Policies in good faith
Emefiele said the CBN acted in good faith towards the achievement of the bank’s objectives and the betterment of the country.
Essentially, Emefiele said there had been concerns about the management of the old series of banknotes as well as currency in circulation, particularly those outside the banking system in the country, stressing that currency management remained a key function of the CBN, as enshrined in Section 2 (b) of the CBN Act 2007.
He noted that the integrity of a local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy, were some of the hallmarks of a great central bank.
The CBN governor, however, noted that in recent times, currency management had faced several daunting challenges that had continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country.
He said recent developments in photographic technology and advancements in printing devices had also made counterfeiting relatively easier, stressing that in recent years, the CBN has recorded significantly higher rates of counterfeiting, especially in the denominations of N500 and N1, 000 banknotes.
According to him, “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.”
· Cashless policy, currency redesign applauded
Notwithstanding the antagonism against the CBN’s cashless policy direction, analysts have thrown their weight behind the move, noting that the decision to limit cash withdrawal limits to individuals and corporate organisations following the currency redesign programme was the right way to go if the country must move forward.
The central bank had placed a cap on cash withdrawals under the new dispensation, restricting the maximum cash withdrawal over the counter (OTC) by individuals and corporate organisations per week to N500,000 and N5 million respectively.
The move by the apex bank it was generally believed was aimed at discouraging vote-buying as the 2023 general election approaches as well as addressing hoarding of the local currency in a bid to check inflationary pressures as well as address critical security issues.
However, speaking in separate interviews with THISDAY, analysts said the new CBN policy will aid in accelerating the monetary policy objectives.
They said the policy will positively enhance the monetary and fiscal space as well as improve the profitability of the banking sector.
The analysts, however, cautioned that the slow adoption of e-banking, the rise in cybercrime coupled with an election year, and other macroeconomic factors could slow the benefits of the policy. They also believed that the policy could strengthen the Naira against the US Dollar.
Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, said the effectiveness of monetary policy hinged on being able to mop up excess liquidity and having the majority of the population included in the financial system.
He said, “Several initiatives by the CBN have tried to encourage both financial inclusion and a cashless society, however, these have been largely ineffective. The new CBN policy will certainly aid in accelerating the monetary policy objectives, whilst also tackling the insecurity challenges and encouraging financial inclusion.
“Though there will undoubtedly be implementation challenges, it is a step in the right direction for sanitising the economy. The excess liquidity floating around in the economy needs to be mopped as this will also help inflation.”
Also, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said the step taken by CBN in limiting cash withdrawal will not only curb vote buying, and terrorism and encourage digital payments, but also reduce the pressure on foreign currency.
“In other words, the measure will improve the value of the Naira against other currencies. It is always a play of demand size against supply size. If there is a scarcity of Naira, foreign currencies will become surplus in the market to exchange for scarce naira.
“It will also help CBN to manage the supply of the redesigned currency which may not be very available to cover the demand for it in all states of the federation at the same time,” he said.
Also, a renowned economist, Mr. Tope Fasua, said the policy could address the current exchange rate gaps.
He said, “The policy will also be a good step in strengthening the value of the naira. At this rate, if this is played right and it is sustained, we may see a scenario where the naira/dollar rate comes down and the naira can strengthen a little bit against the dollar when there is not much money flowing after the dollar.”
On his part, Professor of Finance and Capital Markets, Nasarawa State University, Keffi, Prof. Uche Uwaleke, said the cash withdrawal limit is part of the currency redesign package, adding that the two are mutually dependent.
He said, “It goes without saying that cash withdrawal limit is an integral part of currency redesign meant to reduce the amount of currency circulating outside the banking system.
“If the experience of India’s demonetization exercise is anything to go by, then it’s evident that imposition of cash withdrawal limits by monetary authorities, following a demonetisation exercise, is a norm.
Uwaleke said, “If depositors of old currency notes are able to exchange them for new naira notes which get withdrawn from the banks, then the primary aim of currency redesign is defeated.
“That said, I expect it to give impetus to financial Inclusion as Nigerians become compelled to embrace alternative payment platforms.
“It now behooves the CBN to ensure that bank charges on money transfers and other related charges are reduced to the barest minimum.”
The Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, described the cash withdrawal limits as a step in the right direction by the CBN, adding that the measure will to a large extent reduce the cash in the economy to an acceptable minimum as stipulated by CBN guidelines.
He said, “The measure will also boost the value of the Naira when there are less of N500 and N1000 naira notes in circulation as it is being done with major currencies in the world like the US Dollar, British Pound Sterling, and the Euro.
“This policy implementation will go a long way to increase the use of other means of transactions like internet banking, USSD, ATMs, and POS to boost the cashless policy of the CBN.”
He said, “We know that our economy has been a cash economy for a long time so these measures will initially cause disruptions in the economy but things will settle in the long run and the economy will be better for it.
“The policy will also deter cash hoarders and politicians carrying cash for vote buying, terrorists and kidnappers will also not be getting large sums as ransom with these new measures.”
· Policies will eliminate corruption, reduce poverty
No doubt, beyond the immediate benefits of the CBN’s cashless policy and currency redesign, which includes countering terrorism, and managing money supply among others, the initiative will also ensure that going forward, social intervention programmes that are targeted towards poor Nigerians achieve their desired objectives.
This is partly because going cashless would ensure that such funds can easily be tracked and monitored and this will further provide for greater transparency and accountability by those who administer the resources.
Also, as attested to by Emefiele recently, though the security agencies have been on top of their game in recent times tackling insecurity across the country, nonetheless, the cashless policy initiative of the central bank has helped to reduce the incidence of kidnapping and banditry as a result of the restrictions placed on cash withdrawals.
· Policy in the interest of the masses
In spite of the repeated assurances that the policy was conceived in the interest of the Nigerians particularly the common man on the street and the country as a whole, some groups of individuals, particularly the elites who appeared to benefit from the old system of doing things, have continued to disagree with the CBN and resorted to maligning the bank in order to cause disaffection between the apex bank and the people.
These unpatriotic Nigerians have created the false impression that the recent policy directions of the CBN were inimical to the interest of Nigeria and these would cause them more hardship.
However, the CBN governor had always emphasised that the central bank under him would always be people-focused in its policy directions. This was particularly evident in the role played by the bank in supporting small businesses and households during the COVID-19 pandemic.