SHORTLY before the commencement of the Federal Executive Council meeting on Wednesday, November 24, 2022, President Muhammadu Buhari unveiled the newly redesigned Naira notes. Only three denominations – N200, N500 and N1000 notes – had their colour changed and emblazoned with hard-to-copy security features. The Central Bank of Nigeria (CBN), the issuing authority, says the deadline for phasing out the old notes is January 31, 2023.
The CBN had started planning for the redesign more than six months earlier but kept it under wraps. Not even the country’s Finance Minister, Zainab Ahmed, was taken into confidence and she said so while appearing before a National Assembly committee when a related question was posed to her. Naturally, it sparked off controversy. But why was the finance minister kept in the dark?
Industry experts claimed no infraction was committed by the CBN for not informing the minister and going by the law, the CBN has an exclusive right to carry out the exercise after seeking and obtaining approval from the President. So it did, got approval from the President, executed it and the President unveiled the new notes last Wednesday.
While doing so, the President explained why the redesign was necessary. Apart from the fact that it was long overdue going by global monetary requirements, the exercise was to give the CBN strict control over the amount of money in circulation. In fact, the bank indicated that it would henceforth make withdrawal of huge amount of cash cumbersome as a way of controlling excess liquidity in the system. It was one of the fastest routes to a cashless economy, the CBN added.
However, prior to the unveiling, there were insinuations that the exercise was targeted at politicians who had stashed away huge sums to be used for the 2023 general elections, a narrative the CBN pooh-poohed. But it admitted that there was perhaps more cash outside the record books in the banks, thus fuelling inflation and other mishaps in the economy.
Expectedly, the move generated some controversy as to the reason and the timing. A lot of conspiracy theories have been woven around the action by sceptics; but in spite of the position of the CBN, there are indications that the action is targeted at those who are keeping huge amount of illicit money out of the banking system. There are also indications that security, financial crimes, and anti-narcotic agencies may have raised a red flag concerning illicit activities that generate lots of money but which cannot be passed through the banks for fear of being flagged by our financial intelligence agencies.
These agencies are concerned that such money from proceeds of illicit ventures might also be used to fuel insecurity in the country and further sabotage the country’s economy. To make such money useless or pull some of it into the system, a redesign of the higher denominations of the local currency became inevitable.
In spite of the opposition from quarters likely to be affected by the exercise and from habitual sceptics, those in the financial system and some economic experts have applauded the move, a development which has given the CBN further impetus to propose routine redesign and issuance of new notes every five to eight years as allowed by the constitution.
The country has either redesigned some of its currency notes or introduced new ones about six times since 1973 when the colonial currencies of Pound, Shillings and Pence were replaced with Naira and Kobo. In 1991, new N50 notes replaced the coin version, while N1 note which has since lost its purchasing power was converted to coin. N100, N200 and N500 and N1000 notes were introduced in 1999 and 2000, respectively; while new versions of N5, N10 and N50 notes and introduction of N2 coin come into the system in 2007. Only five denominations – N50, N100, N200, N500 and N1000 denominations – are actively in use now. The lower denominations have been consumed by inflationary trends.
Commentators have described the currency change as cosmetic, pointing out that the issue with the currency is not the design but the purchasing power, as it has fallen far behind the major currencies of the world, and can purchase very little. Some have suggested denomination instead of design change. On the day the President unveiled the new currency notes, the Naira exchanged for between N435 and N447 to the US Dollar at the official market and between N772 and N775 in the black market.
The country’s currency started its downward journey during the era of the structural adjustment programme (SAP) under the Ibrahim Babangida regime when the currency was devalued on the advice of the International Monetary Fund (IMF). Since then, the legal tender had been taking a downward trajectory, especially with the country’s consistent poor balance of trade since then. It got worse when the CBN allowed the local currency to float against other major world currencies. Since then, the Naira has been on a merry gallop down the slope.
Experts have suggested that except the country’s economy is massively revamped for productivity and the people drastically reduce their crave for foreign goods, the currency will continue to enjoy a free ride because no policy prescription without a corresponding rejuvenation of the productive sectors of the economy can effectively and sustainably put a rein on the floating spree. They have suggested severally that there must be multiple streams of income that would take some weight off crude oil proceeds which seem to be the only visible commodity in the export market. The weak nature of the country’s currency is blamed on the lack of bargaining power in the international market since the country has no exchange capability.
Nigeria’s romance with crude oil proceeds and the long military intervention in the political space saw a blissful economic regime that had no business with agriculture and manufacturing which buoyed the economy in the 1960s and 70s, and which saw the country’s economy and by extension it’s currency being one of the strongest in the world. Nigeria today is reaping the fruits of that mindless escapade and experts have warned that unless something very urgent is done to return the economy to the diversification lane, the currency might cross the red line and put the economy on a topsy turvy.
CBN Governor, Godwin Emefiele, believes that the currency redesign will help mop up excess liquidity from the system and allow for effective monitoring of the volume of currency in circulation, and that would at least help reduce the rising inflationary trend and allow for better planning of the economy. Again, some economic experts say it is a mere cosmetic move which, though necessary at this time, was not sustainable.
While unveiling the new notes, President Buhari echoed Emefiele’s position that the initiative would help the CBN to design and implement better monetary policy objectives, control currency in circulation and reduce overall cost of currency management. Emefiele also emphasised moving towards a cashless economy, as he keeps harping on restraining huge cash in hand and restricting the volume of cash withdrawals over the counter.
The CBN has already set January 31, 2023 as the deadline for phasing out of the old notes, a move seen as targeting less circulation of huge volumes of cash during the February general elections. Even before the commencement of the exchange exercise, some Nigerians are already calling for extension of the exchange period. It has become routine, in fact a culture for some Nigerians not to obey time limits on any venture, no matter how long the grace period might be.
A typical example is the registration of voters which has been going on for years until recently when the Independent National Electoral Commission put a constitutional wedge to the ever-rolling exercise. If the CBN has a cardinal objective for embarking on the currency redesign, it must not lend itself to the unbecoming indulgence of extending deadlines; otherwise the purpose for he exercise would have been defeated. Those who fail to sort out themselves within the stipulated period must be made to forfeit whatever they have as a penalty for their complacency.
While we support the positive motive behind the currency redesign, it would be necessary to suggest, given previous experiences, that the relevant agencies must be ready to diligently execute the task so that the process is not corrupted and the essence defeated. It is common knowledge that some people are always out to compromise and even criminalise a system that is working, so the EFCC, DSS, financial intelligence networks and the banks must be very vigilant. The CBN must provide the necessary supervision to ensure smooth and diligent transition. The reason being that nothing is beyond a corrupt mind and those in this category are legion and are prepared to go to every length to have their day.
Already, huge amounts of the local currency are being exchanged for foreign currencies as an escape route; so the bureau de change operators must also be on the watch list. Going forward, the CBN must intensify its e-money campaign and promote more of digital banking or transactions using the digital channels to push its cashless policy.
We urge the Federal Government to intensify efforts at diversifying the economy for the future especially in the face of global demands for fewer investments in fossil energy sources, which is the mainstay of Nigeria’s foreign exchange earnings. The world is gradually going green and clean and Nigeria cannot continue to solely rely on the carbon and soot energy resources for survival.
It is heart-warming that agriculture and manufacturing are warming up on the GDP scale; we urge the government and all Nigerians to continue to intensify efforts at curbing insecurity and providing safe grounds for farmers to return to the field. Efforts should also be intensified in the provision of basic infrastructure to aid movement and processing of goods to boost the manufacturing and export sectors while initiating policies that would sustain the emerging economic initiatives.
Government must be firm in dealing with economic saboteurs and encouraging entrepreneurs who are willing and capable of investing in the economy, both local and foreign. It should step up on the ease of doing business template and eliminate the bottlenecks that constrain genuine investment efforts. Banks must also be ready to support genuine entrepreneurs with less cumbersome facilities that would help their businesses and boost the economy. Citizens must pay appropriate taxes when due and discharge their official and social responsibilities.
When genuine efforts are made from all angles and with a robust good governance structure, the economy will on its own blossom for the benefit of all. When that happens, the issue of currency redesign would only be a routine exercise and not a major project with controversial trappings.