Naira Redesign, Policy Design and Execution Flaws

Naira Redesign, Policy Design and Execution Flaws

Postscript by Waziri Adio

The cash crunch and the attendant economic and social dislocations created by the currency redesign policy of the Central Bank of Nigeria (CBN) have surfaced many design and implementation flaws that typically undermine the effectiveness of public policies. Having good intentions (whichever way that is defined) or securing necessary authorisation or demonstrating the stamina to stay the course is never enough or necessarily optimal. Not every policy can or should be executed with the brute force of the state, even under a dictatorship, but especially in a democracy.

There are many lessons screaming to be learnt in the unfolding odyssey of this CBN policy. But the policy designers/implementers and the policy authorisers must demonstrate the capacity to learn, the humility to admit their errors, and, most importantly, the ability to undertake necessary course correction to avoid creating a greater crisis. Nigeria and Nigerians are going through it at the moment. With generalised insecurity, rising food prices, election-related anxieties, and petrol queues, there is enough tension in the land. The implementation of the Naira redesign policy can create a spark. This should be avoided. At all cost. By all means.

The President Muhammadu Buhari administration has just a little over three months to go. Compromising the fragile, post-COVID economic recovery, gratuitously crippling businesses and livelihoods, and punishing and further immiserating the populace, especially the poor and the vulnerable, in the name of a policy whose benefits are in the future and may be difficult to quantify is not exactly the impression a president wants to leave in his last quarter in office.

The president’s position as the approving authority on currency change in enshrined in 20 (3) of the CBN Act, 2007. So, even when the CBN is the adviser, the designer and the implementer of the policy, the onus is squarely on the president. President Buhari should step in to eliminate the needless suffering inflicted on Nigerians by the implementation of the policy. He should be bothered less about ego and more about legacy. Both the Supreme Court and the Council of State have given him some ample room to walk back without losing face.

The CBN has been busy pointing accusing fingers at those frustrating the implementation of the policy. Mr. Godwin Emefiele, the CBN governor, toed this path on Friday in his presentation to the Council of State. He reportedly laid the blames at the doors of hoarders, politicians, panicking public and economic opportunists. During his appearance before a committee of the House of Representatives on 31st January, Emefiele also said that some bankers were undermining the policy and that the apex bank was working with NFIU, ICPC and EFCC to bring the errant bankers to heel. And indeed, the anticorruption agencies have hauled in some bankers. Angry members of the public have also attacked a few banks and destroyed some money-dispensing machines. In some places, banks have closed down, further compounding the crunch.

If you buy the line pushed by the CBN, everyone else but the CBN is to blame for the pains of the Naira redesign policy. But is the CBN really without blame? No.

To start with, is there anything that has happened that the CBN couldn’t have anticipated and shouldn’t have planned for or against? Hardly. Policy makers are usually advised to take Murphy’s Law as an iron law and to always factor it into policy design and implementation. Murphy’s Law roughly translates to assume that: ‘anything that can go wrong will go wrong’. Did CBN anticipate all the things that could go wrong with its Naira redesign policy and did it plan adequately against those things and how have those back-up stacked up against unfolding reality?

In other words, what risks did the CBN identify and what risk-mitigation strategies did it put in place? Or did CBN just assume that with presidential approval secured all would go swimmingly? It is apparent that CBN was surprised by the reaction to the thinness of its groundwork and has had to play catch-up to the few taking advantage of the arbitrage opportunities that it created and to its lack of rigour.

The second and related issue is that there is a serious scarcity of the new Naira notes, and the CBN cannot be absolved of the blame. The CBN governor has been busy talking about how much the apex bank has pulled in from the currency in circulation but has never mentioned how much money CBN has printed or distributed to the banks. The reason is simple: CBN has not printed enough. By its own admission, CBN is printing locally, and not a few people know the full capacity of the Mint. Beyond what people know or sense about this capacity constraints, CBN also actively signalled that it didn’t have enough notes: it didn’t make the new notes available until December 15th, it initially asked banks not to pay new notes over counter, then it imposed a limit on how much they could give out over the counter.

Nigerians easily picked up the signal that CBN was rationing the new notes. Those who have access to the new notes assign a margin. Those who get or buy the new notes are not letting go of them, so the notes are not getting back into the banks or are not going into circulation. The initial scarcity created a second order scarcity: most people are scampering to join the ever-growing queues, increasing the sense of scarcity. The inadequacy of online banking and digital payment platforms compounded the search for cash. A few have taken advantage of the scarcity, and they should be made to face the music. But the real problem is the scarcity that CBN created and signalled. Once there are enough new notes, there won’t be a reason for anyone to hoard them or pay a premium to get them or spend precious hours on queues just to get just a few thousands.

This leads to a third lapse in the design and implementation of the policy: CBN’s underestimation of the cash need of Nigerians. An article on the Policy Insight platform of Agora Policy, a think tank that I run, captures this well. Titled ‘Naira Redesign Policy: Of Faulty Assumptions, Systemic Risks and Ways Out,’ the article submits that Nigeria has a significant informal sector and “informality and cash use go hand-in-hand”. An NBS data cited by the article shows that as at 2021, only 35.4% of women and 47.2% of men between the ages of 15 and 49 had bank accounts in Nigeria. Sum: a majority of Nigerians are unbanked and will need cash to get by daily. But even the banked still need and rely on cash, a position backed by data.

“Almost all available information pointed to cash being ubiquitous in the daily life of Nigerians,” the article states. “The failure by the CBN to foresee this necessary cash demand means that it probably underestimated how much demand there would be for the new currency notes.”  (The article can be accessed here: This underestimation and other faulty assumptions are design errors, and they fall squarely on the CBN. From a policy design and implementation perspective, it would have been better for the CBN to overestimate than to underestimate. If anyone that wanted a replacement for their deposited cash could get as much as they needed from Day 1, the queues, the rush for cash and the sharp practices wouldn’t have started. This approach also aligns with the exhortation in Murphy’s Law.

In his initial announcement and in subsequent interventions, the CBN governor set out the following as the objectives of the Naira redesign policy: to reduce the portion of money in circulation outside the banking system, to increase the supply of clean notes, to make monetary policy more efficacious, to limit counterfeiting of the Naira, to deepen the cashless policy and to support the security forces in fighting terrorism and ransom taking.

Most of these objectives are desirable while one or two clearly stand on thin ice. There is also lack of clarity about whether the policy was about cash swap or about demonetisation and whether the two objective can be pursued simultaneously. This is the fourth flaw. All these notwithstanding, a concession can be made that CBN has the right to set its objectives whether those objectives are realisable or not. However, CBN has not provided a compelling argument why these objectives can only be achieved within six or eight weeks of making the new Naira notes available. The CBN governor has been speaking authoritatively and sternly about immovable deadlines. Which of his stated objectives will suffer from a more flexible deadline and why? And why such a haste that imposes a cost on the generality of the populace, especially the poor and the vulnerable, when CBN has not made enough cash available to those who need them?

It is this dogmatism about deadline and the small issue of timing that have fuelled all sorts of insinuations that the CBN might have other intentions, including those clearly beyond its remit. Right from the time the policy was announced, a spin emerged that the Naira redesign is intended to stop vote-buying in the forthcoming general election. The CBN has neither confirmed nor denied this. It is conceivable that this spin enjoys CBN’s endorsement. The spin has taken a life of its own, including spurning subvariants and conspiracy theories about how the policy was designed to stop a particular candidate and how ample supply of new notes have been made available to one of the candidates endorsing the policy. There may be nothing to all these insinuations. But this is a really unfortunate turn of events, and a key flaw itself. The CBN and its policies should never be dragged into the arena of partisan and electoral politics.

By all means, vote-buying and related economic and political ills should be tackled headlong, with the state in the lead. But there should be more precise and effective tools, including specific financial, intelligence and law enforcement instruments, for addressing such. If indeed the noble desire to stop vote-buying is one of the unstated objectives of the policy, then CBN has deployed a blunt and indiscriminate tool that is unjustly harming millions instead of narrowly targeting the few perpetrators of vote buying. What the CBN has done is akin to setting a house and its occupants on fire to kill a few rats. Incidentally, a policy that results in people not being able to access their own money has also made many susceptible and vulnerable to vote selling. Talk of the harm of unintended consequences.

Mindful policy makers observe a golden rule: Do No Harm. To be sure, causing some discomfort or harm is sometimes unavoidable in the contact sport that is policymaking. This is where running policy options through the cost-benefit lens comes in, why payoffs and trade-offs are carefully weighed, why there is always the need to aim for the least costly and most beneficial approach, and why simulation, sequencing, timing, flexibility and iteration are touchpoints of effective policy-making.

Weighed against these principles, this particular policy doesn’t pass muster. The deadline should be extended until CBN is able to meet the demand for new notes. And until then and as advised by the Council of State, the old notes should be reintroduced to mitigate the unwarranted harm to citizens and the country.


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