By Cosmas Omegho, Olakunle Olafioye and Daniel Kanu
As the nation awaits the official flag off of the redesigning of some denominations of the naira, anxiety is mounting over the possible fallouts of the initiative as economic and financial experts express divergent views on the proposal.
The Governor of the Central Bank of Nigeria, CBN, Godwin Emefiele had recently announced that the apex bank would redesign three denominations of the currency.
The denominations to be affected, according to Emefiele, are N200, N500 and N1,000 notes. Justifying the proposal, the CBN governor said that the policy is aimed at controlling the currency in circulation just as he revealed that the bulk of the nation’s currency notes are outside the bank vaults, a development, he said, the CBN would not allow to continue any longer.
He had noted that currency hoarding, inflation, and counterfeiting rank top among the reasons for the apex bank’s decision.
The CBN claimed that about N2.73 trillion of the N3.23 trillion of the currency in circulation in the country is outside the bank vaults. This is about 85 per cent of the total money in circulation.
Also, the naira, he pointed out, was not as secured as it ought to be, saying that it is easier to counterfeit the N500 and N1,000 denominations.
According to Emefiele, the proposal is in line with Section 19, Sub-sections A and B of the CBN Act 2007, adding that the management of the CBN sought and obtained the approval of President Muhammadu Buhari to redesign, produce, and circulate new series of the affected bank notes.
But an indication that controversy would soon trail the proposal emerged sooner than expected and from an unexpected end too.
Shortly after the announcement, the Minister of Finance, Budget and National Planning, Zainab Ahmed, told the lawmakers that she was not consulted before the apex bank announced the plan and timeline for the redesign of the N200, N500 and N1,000 notes.
But in a swift response, the CBN insisted that it followed the law and due process before going public with the announcement.
But if the confirmation from the presidency that the CBN indeed sought its approval before going public with its announcement doused the initial controversy generated by the planned redesign of the nation’s currency, discordant tunes that have trailed the proposal so far have succeeded in re-igniting and heightening the tension around the policy.
A monetary and development economist, Dr Tayo Bello in an interview with Sunday Sun said that the policy has the propensity to cause economic dislocation.
He listed parts of the challenges the proposal is likely to throw up to include further pressure on the naira.
“I am of the view that the naira will nosedive further to N1,000 to a dollar by December. This is a consumer-oriented economy,” he said, adding that, “If the CBN assumes that over 80 per cent of the money in circulation is outside the banking system and less than 20 per cent is within the banking system; I can see a problem there.
“The proposal will, of course, ginger the economy and bring many people into the banking net, but do we have the network of banks throughout the country that can cover it? About 25 years ago, the CBN came up with a policy known as rural banking. The policy caused banks to spring up in rural areas across the country, but shortly after the banks in the rural areas were closed down, claiming that the idea was not profitable. How then do we expect rural dwellers to patronize banks that are far away from them?”
Declaring support for CBN’s decision to redesign the naira, the CEO of BIC Consultancy Services and one-time contributor to CBN’s Quality Assurance FSS 2020 project, Dr Boniface Chizea, said: “The CBN has the sole authority to issue legal tender currency in Nigeria. The bank alone is able to determine the quantum of currency to release as to align with other critical objectives, particularly macro-economic stability.”
He told Sunday Sun that “the rate of exchange will fall as we are now witnessing because the race to convert illegally held naira has now commenced with this announcement. The challenge confronting the CBN now will be how to determine measures to check the slide.”
In his contribution, Dr Muda Yusuf, the immediate past director general of the Lagos Chamber of Commerce and Industry (LCCI) and the chief executive officer, Centre for the Promotion of Private Enterprise [CPPE] is in sharp disagreement with the position of Dr Chizea as he told Sunday Sun that the exercise was not only unnecessary for now, but also a distraction.
The CPPE boss is of the view that the exercise has no monetary policy significance.
His words: “It is difficult to see any compelling value proposition of this currency redesign idea. The cost of such an action would be outrageous and disproportionate compared to the expected benefits advanced by the CBN.
“At a time when the government is grappling with high fiscal deficit, debt crisis, severe revenue crisis and underfunding of many government projects and programmes, it is most inappropriate to embark on such a profligate exercise.
“Currency in circulation as a percentage of money supply is less than seven per cent. Currency as percentage of GDP is less than two per cent.The exercise, therefore, has no monetary policy significance.
“Besides it will come with huge logistics costs, and avoidable dislocations to small businesses, most of whom are in the informal sector. The pronouncement on the currency redesign has worsened the dollarisation of the economy. It has accelerated the tumbling of the naira exchange rate. Our local currency is facing a major crisis of confidence.
“The CBN should save the citizens and the economy the trauma of this currency redesign. It is a distraction we can do without.”
In his submission, a World Bank Consultant and former Finance Commissioner in Abia State, Dr Phillips Ntoh, told Sunday Sun that the CBN action to redesign the naira has both merits and demerits, but that the timing was wrong and would rubbish its merit.
“It will help us to fight corruption. You know most of these politicians because of the peg on deposit rates they pack the money in their houses. Some of the naira currency has gone bad and some eaten by termites.
“This move will now force them to bring out the money to the banks. You know the e-banking did not capture all the money in circulation. The amount of money out of the banking sector is too high; it’s massive so this action will definitely force them to bring out the money back to the system so that it can be captured.
“It is in the CBN Act to redesign the naira periodically as it will help to checkmate fake money in circulation.
“But on the issue of its effect on the economy, my worry is that the majority of Nigerians are suffering, you are finding it difficult to pay salary, you are borrowing to finance your budget 2023 proposal, so why go into such capital-intensive project?
“The project no doubt is money consuming. One can say it’s a good development, but coming at a very wrong time. It is coming at a time people are finding it difficult to eat, but if you look at it on the other side, it is also coming at a time that the politicians will likely put the money into election.
“CBN has pegged deposit now, N50 million, so accounts are seriously being monitored. Some of the politicians are putting back the money to the banks in billions, so it’s going back into the banking sector. The decision is a tough one, especially in its wrong timing,” he said.
Ntoh, who is also provost, Abia State College of Education Technical, Arochukwu (ASCETA), however, expressed doubt that the step would resolve inflation problem, “because there are also other major reasons for inflation such as the forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on food price inflation.”
On his part , popular Islamic cleric, Sheikh Ahmad Gumi, kicked against the redesigning of the naira, describing it as economic suicide for Nigerians, particularly the North, which he noted, is poorly represented in the banking system.
Gumi was assertive in saying that the move would not stop kidnapping as speculated in some quarters, but rather may aggravate it.
In a statement entitled “Changing the Naira: This is no time for economic kamikaze!”, Gumi said that any policy that would cause more cash crunch is a disaster for the nation.
He said the policy would not starve kidnappers of cash as some have reasoned because they may decide to demand for dollars and other currencies to make life harder for the people.
“People that sell goods will tell you that most Nigerians don’t have the money to buy things; therefore, most traders are running at a loss and are already folding up. At this juncture, anything that can cause more cash crunch will be a disaster for the nation.
“Many good ideas are marred by wrong timing. This is likely to be another one. No matter how ingenious the hatchers may romanticize, the benefit will remain phantom since the reality on the ground is incongruous and it spells doom for the escapade,” Gumi said.
Captain David Mbamara (rtd), Labour Party governorship aspirant in Imo State, said that although the Federal Government plan to redesign the naira is laudable, he is of the opinion that such move was also a tacit admission by the government that Nigeria’s economy has collapsed.
He said: “This is a tacit admission by the Federal Government that Nigeria’s economy has collapsed. It is equally a technical way and a very desperate attempt by the Nigeria state to redeem the naira.”
Mbamara blamed what he described as “collapsed economy” on corruption, which has eaten deep into the fabric of the nation, saying that “corruption has eaten so deep into the fabric of Nigeria state that corrupt money is now under people’s homes and under their beds, and what you have now is too much naira pursuing few dollars because the economy is no longer productive, but rather consumption-oriented.
“So, our naira is not backed by foreign earnings and the only foreign exchange earner for Nigeria, oil, has also collapsed.”
Also in his contribution, Prof Tunde Adeoye of Department of Economics, University of Lagos, said that the policy would be counter-productive as some of the objectives it is set to achieve are already being defeated.
His words: “Even before the policy comes into effect, it is becoming counter-productive. Our economy is too fragile for us to be redesigning money now because of the cost. So, we can see that the expected benefits outweigh the cost.
“And now, let me say that the thieves the policy are expected to catch especially those involved in banditry, and kidnapping have devised another means of converting their naira into dollar. That will not stop those vices because after they have changed their money, they will continue with their practice as long as insecurity persists. They will seek to bring in the new notes when they are released.
“Therefore, the idea of pulling out money stored away somewhere is already defeated because such money is being taken to the parallel market to buy dollar. And that is why the dollar rate has skyrocked. Now, such money will not go back to the banking system because the essence of that policy is to mop up money outside the banking system.
“Now, the only thing the CBN can do is to encourage the people to bring such money into the banking system. Sadly, look at the time given. It is too wide. In fact, in some cases, some people are using the money to buy property. If you see the rate at which some people are buying property now, you ask ‘where are they getting the money from?’ They don’t take such money to the bank so that they will not be asked how they arrived at such. So, what they do now is buy buildings and so forth.”