CBN’s Naira redesign and EFCC’s beamlight 

In the face of rising  inflation rate, the Central of Bank of Nigeria (CBN) announced the decision to redesign Naira’s higher denominations in a bid to take control of money in circulation in the country. The CBN gave deadline to phase out of circulation the existing N200, N500, and N1,000 notes out of circulation on 31st January, 2022.

The Governor of the Apex bank, Godwin Emefiele while making the pronouncement noted that over 85 per cent of Naira notes were outside the vaults of the commercial banks. The CBN Governor specifically laid emphasis that out of the N3.23 trillion in circulation, over N2.27 were out of the vaults of the commercial banks.

To be more specific, as at the end of September 2022, available data at the CBN indicate that N2.73 trillion out of the N3.23 trillion currency in circulation, was outside the vaults of Commercial Banks across the country; and supposedly held by the public.

The situation however has been interpreted as a positive moves by some schools of thought and negative by the other. The implications of currency in circulation out of the money deposit Banking System has reduced the Apex bank in terms of policies regulations.

It would be recalled that the bank had raised the Cash Reserve Ratio from 22.5 per cent to 32.5 per cent in order to reduce money in circulation and curb inflation.

To curb inflation, the CBN uses monetary policies to regulate total money in circulation. By reducing the quantity of money in circulation, it helps to curb demand-push inflation, which is derived from the “more money chasing fewer goods” principle.

If truly over 85 per cent of cash in circulation are outside the vault of the commercial banks, then the monetary policy of the bank may not be able to have the desired effect on inflation which stands above 23 per cent as of September. Aside from inflation, the other issue the CBN is trying to checkmate is the money in the hands of bandits sourced from ransom.

According to Emefiele, “the bank is convinced that the incidents of terrorism and kidnapping would be minimized as access to large volume of money outside the banking system used as source of funds for ransom payment will begin to dry up.

“Section 20(3) gives the CBN the power to recall notes, subject to the approval of the president. Notwithstanding, Sub-sections (1) and (2) of this section, the Bank shall have power, if directed to do so by the President and after giving reasonable notice in that behalf, to call in any of its notes or coins on payment of the face value thereof and any note or coin with respect to which a notice has been given under this Sub-section, shall, on the expiration of the notice, cease to be legal tender, but, subject to section 22 of this Act, shall be redeemed by the Bank upon demand.

Despite this power, the announcement by the CBN has generated mixed reactions. Many have taken to social media to reject the proposal by the CBN, stating that it will not address the inflationary pressure facing the country.

Some have also expressed fear that business outlets may start to reject the old Naira notes in anticipation of the deadline set by the bank.

The Minister of Finance, Zainab Ahmed, while appearing before the Senate Committee on Finance, kicked against the policy. Her position is that the timing is poor. As a Nigerian privileged to be at the top of Nigeria’s fiscal management, the policy, as rolled out at this time, portends serious consequences on the value of Naira to other foreign currencies.

Several Experts, including the Chief Executive Officer of Accountants National Association of Nigeria (ANAN), Dr. Kayode Olushola Fasua said that the CBN has not done anything wrong. It is global best practice for currency notes to be redesigned, produced and circulated every 5 to 8 years to save it from counterfeiting and hoarding. The last time we redesigned ours was in 2014 when we redesigned and circulated the 100 note to commemorate 100 years of Nigeria’s existence. I think this current move is to curb inflation by mopping up excess liquidity from circulation, thereby also reducing the incidence of vote buying in next year’s election if you consider the possibility of massive hoarding of our currency (up to 85 per cent) which is why interest rates have to go up according to the CBN Governor. It will also address counterfeiting of Naira.”

Dr. Fasua emphasized that the timing however may not be appropriate considering the cost implication at a time when we should be thinking of how to fund critical infrastructure and debt servicing, spending taxpayers money on redesigning our currency notes may be ill timed.

“We should focus more on increasing the purchasing power of the Naira by increasing our production and export capacity.”

A Professor of Economics at the University of Ilorin, in Kwara State, Professor Gafar Ijaya, has commended the Central Bank of Nigeria for its move to redesign the Naira notes. The exercise was coming 12 years behind schedule, as provided in the Act that established the Apex Bank. He said the Act empowers the Central Bank, to redesign the nations currency in every 5 to 8 years.

“The policy (redesigning of the selected currencies) is not new. The CBN Act provides for redesigning between 5 to 8 years but for the past 20 years, this was not done. So, by the Section of the Act, the CBN has that power,”he added. It would also help to address the issue of counterfeit or fake currencies.

“The CBN recently lamented the issue of hoarding of banknotes. The evidence provided was that 85 per cent of the currencies in circulation are outside the vaults of the financial sector, which has led to a drop in the rate of investment and an increase in the rate of inflation.The Chairman of the EFCC, AbdulRasheed Bawa endorse the move by the CBN and warned Bureau De Change operatives to be careful of hoarders.There is the risk that the involvement of the EFCC may create an extra bottleneck for people who will be seeking to swap the old notes for the new notes. However they will be forced to either deposit the money or embark on massive investment.

The anti corruption agency at this critical period must not relax on its oars but act like a sleepless watchdog, especially in the nights when most of the currencies exchange to dollars will take place between the billionaires and the Bureau De Change Operators.

The sister agency ICPC should also in a collaborative manner key into the train by arresting suspected moneybags hoarders as a means of cleansing the system.