*Godwin Emefiele, Governor of the Central Bank of Nigeria, explains currency management has faced ‘several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country’

*Experts’ varied reactions to CBN’s redesigning, planned release of new Naira notes

Isola Moses | ConsumerConnect

In a move to take control of the circulation and integrity of the national currency, the Central Bank of Nigeria (CBN) has thrown more light on the rationale behind its redesigning of the Naira, Nigeria’s currency notes.

ConsumerConnect reports Mr. Godwin Emefiele, Governor of CBN, disclosed this development at a media briefing Wednesday, October 26, 2022, in Abuja, FCT.

Emefiele said that the exercise would affect the upper denominations, including 200, 500 and 1000 notes.

Mr. Godwin Emefiele, Governor of CBN

The CBN Chief stated that the new Naira notes would be released into circulation for public use December 15, 2022.

According to Emefiele, both the existing and new notes will circulate together until January 31, 2023, when the old notes will have ceased to be legal tender in the West African country.

Rationale for redesigning exercise

Expatiating on the reasons for the action, Emefiele noted that the bulk of the Nigerian currency notes were outside bank vaults and the Bankers’ Bank would not allow the  situation to continue.

“Indeed, the integrity of a local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy are some of the hallmarks of a great Central Bank.

“In recent times, however, currency management has faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country,” said he.

The CBN Governor also  said these challenges included hoarding of banknotes by members of the public, with statistics indicating that over 80 percent of currency in circulation is outside the vaults of commercial banks.

Statutory power cum presidential approval

Emefiele further stated: “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 N100, N200, N500, and N1,000 levels.

“In line with this approval, we have finalised arrangements for the new currency to begin circulation from December 15, 2022.

“The new and existing currencies shall remain legal tender and circulate together until January 31, 2023 when the existing currencies shall cease to be legal tender.”

Dr. Muda Yusuf, CEO of Centre for Promotion of Private Enterprise

He noted: “Accordingly, all Deposit Money Banks (DMBs) currently holding the existing denominations of the currency may begin returning these notes back to the CBN effective immediately.

“The newly designed currency will be released to the banks in the order of first-come-first-served basis.”

Banks and customers’ responsibilities

The CBN as well said: “Customers of banks are enjoined to begin paying into their bank accounts the existing currency to enable them withdraw the new banknotes once circulation begins in mid-December 2022.

“All banks are therefore expected to keep open, their currency processing centres from Monday to Saturday so as to accommodate all cash that will be returned by their customers.”

Emefiele further explained: “For the purpose of this transition from existing to new notes, bank charges for cash deposits are hereby suspended with immediate effect. “Therefore, DMBs are to note that no bank customer shall bear any charges for cash returned/paid into their accounts.

“Members of the public are to please note that the present notes remain legal tender and should not be rejected as a means of exchange for purchase of goods and services.”

Experts’ reactions to CBN’s move

In view of the Central of Bank of Nigeria’s plan to redesign and circulate new Naira notes effective December 15 this year, industry experts have cast doubt on the plan.

Commenting on this development, Prof. Magnus Kpakol, former Economic Adviser and Chief Executive Officer (CEO) of National Planning, said that the exercise would come at a cost.

However, Prof. Kpakol told Vanguard that the CBN must have considered the cost of the change to the economy.

The expert said: “It will certainly come at a cost.

“Obviously, the bank must have considered this and concluded that the cost of the exercise is less than the cost of the current situation to the economy.

“Re-designing the currency is not bad and certainly the CBN must have reasons for the decision which could be monetary and even from the executive side.”

He also noted: “It could be targeting those who have stashed a lot of cash and may want to use it to put pressure on the currency at the foreign exchange market or who may want to compromise the forthcoming elections.

“As you know, elections are coming and it is possible for some people to want to buy up Dollars because of the uncertainties that come with elections or those who could have stashed cash just to compromise the process or the electorate.

“This will have impact on them.”

Currency crowding

In his comment on the Bank’s action, Prof. Uche Uwaleke, President, Association of Capital Market Academics of Nigeria (ACMAN), said: “I think the decision to replace some Naira denominations with new ones will be positive for the economy in the medium to long term.

“First, although the measure does not amount to demonetisation of big currency notes often carried out by Central Banks to curb black money and corruption, it will go a long way in ensuring that a lot of Naira notes circulating outside the banks are crowded in.

“If it leads to large deposits in banks, it means the banks will have more money to lend which may reduce interest rates.”

Prof. Uwaleke said: “I also think it may have the effect of reducing speculative attacks on the Naira in the parallel market.

“I expect that the Financial Intelligence Unit will be on the watch out for huge deposits as a way of monitoring illegitimate transactions.”

Suck back currency outside vaults

Reacting to the government’s decision, Tajudeen Olayinka, CEO Wyoming Capital and Partners, was quoted to have stated: “I think CBN is trying to systematically suck back into the banking system, that quantum of money that is currently outside the vaults of banks, estimated at 80 percent of money in circulation.

“Doing so, CBN will be able to eliminate counterfeit bank notes and reduce the quantum of illegal money/proceeds of crime that are possibly adding up to challenges of inflation.”

Implications for businesses, consumers

Olayinka also said: ‘‘As a matter of fact, CBN is attempting to use the new policy as a strategic weapon to controlling inflation.

“What will happen?  More people and businesses will resort to the use of electronic money, by directing their customers and counter-parties to pay transactions’ money directly into their bank accounts, to eliminate the risk of receiving counterfeit money.

‘‘Those holding illegal money would attempt to buy foreign currencies in the black market, but might be required to deposit Naira equivalent at the banks which could expose the source of the money they are exchanging because of disclosure requirements.”

Redesigning a blow on illegal Naira

Reacting to the plan, analyst and Vice Chairman of HighCap Securities Limited, however, said: “I am yet to know CBN’s justification for this action.

“Several speculations are floating around but the shocking move appears to be an attempt to ascertain the volume of those notes in circulation and probably deal a blow on those dealing illegally in them.

“If my speculation is wrong, merely redesigning a currency is not likely to change its value.

“The inflation ravaging the Naira now which is diminishing it’s value is as a result of scarcity of forex, goods and over creation of the currency by CBN.”

The analyst said the cost of redesigning and printing the new notes would be another dent on CBN’s balance sheet, which would also deplete the country’s Forex reserve.

“The exercise may just be a costly motion without movement and a futile rescue mission,” he stated.

No tangible effect on economy: Ikuomola

Speaking on the development, Mr. Adebisi Ikuomola, Executive Director of Technical, Anchor Insurance Limited, commented that he doesn’t see the development having any tangible effect on the economy or strengthening the Naira.

Ikuomola said: “The CBN said that the move is geared towards reducing the volume of Naira in circulation.

“However, I don’t see how that can positively affect the economy or strengthen the Naira.

“The Naira is weak in the foreign exchange market and this policy may not turn that around.”

He stated: “However, this development could cause panic among Nigerians as many of them will be scampering to the banks to change their old notes. “Consequently, the banking halls that have seen some level of calm in terms of customer congestion could see a beehive of crowds in the coming days.”

It’s a profligate exercise –Muda Yusuf

In his reaction, Dr. Muda Yusuf, CEO of Centre for the Promotion of Private Enterprise (CPPE),  described the CBN plan to redesign the currency notes as embarking on a profligate exercise and distraction.

Yusuf, who is also a former Director-General of LCCI, said: “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 CBN.”

He also contended “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 as a percentage of money supply is less than seven percent.

“The exercise therefore has no monetary policy significance.

“Besides, it will come with huge logistics costs and avoidable dislocations to small businesses, most of who are in the informal sector.”

The CPPE Managing Director contended “this is one intervention we can do without.

“There are more urgent issues demanding the attention of CBN.

“We have issues with liquidity in the foreign exchange market, the depreciating currency the recent Moody’s downgrade of Nigeria, soaring inflation and many more.”

Yusuf added: “The CBN should save the citizens and the economy the trauma of this currency redesign.

“It is a distraction we can do without.”