*Godwin Emefiele, Governor of the Central Bank of Nigeria, explains to members of the diplomatic community how the Naira redesign and cash withdrawal policies are aimed to boost financial inclusion, reduce cash volume in ‘underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses’, and ultimately control inflation in the West African country

Gbenga Kayode | ConsumerConnect

Ahead of the Supreme Court decision Wednesday, February 15, 2023, in respect of the earlier February 10 deadline for the use old banknotes as a legal tender, Mr. Godwin Emefiele, Governor of the Central Bank of Nigeria has engaged the members of the diplomatic corps in Abuja, FCT.

ConsumerConnect reports Emefiele, in his briefing to the diplomatic and consular missions Tuesday, February 14, explained the recent monetary policy decisions of the Bankers’ Bank in relation to how the prevailing global and domestic developments have affected the country’s economy.

Telling effects of global shocks on Nigerian economy

According to him, there have been series of path-altering shocks, including the devastating effects of the COVID-19 pandemic, as well as the socio-economic dislocations from Russian-Ukrainian war.

Redesigned Naira notes

Emefiele stated that “disruptive global developments have influenced monetary policy decisions of the central banks in many countries as they struggle to balance the objective price stability with the desire for long-run output stabilisation.”

The CBN Governor further explained that amidst the dampening effect from global conditions, short-term outlook of the Nigerian economy remained stable, and tilts to the upside.

“The steady pick-up of economic activities observed throughout 2022 is expected to continue in 2023, keeping recovery on-track.

“This follows programmed measures to mitigate external shocks, curtail domestic constraints, strengthen economic fundamentals, elicit structural rebalancing, and boost long-run prosperity. Regardless of existing fragilities and relentless exogenous threats, the Nigerian economy has so far largely withstood powerful global pressures.”

CBN’s interventions to support critical economic activities

The CBN as well noted how the country’s economy experienced year-on-year inflation rate at 21.34 percent December 2022, and remained above medium-term average and the Bank’s tolerance band, it eased by 0.13 percentage points from the November outcome.

“This marginal reduction reflected the 0.38 percentage points drop in food inflation to 23.75 percent as against the 0.25 percentage points rise in core inflation to 18.49 percent.

“This year-on-year disinflation is feeble, especially as seasonality factors elevated month-on-month inflation by 0.32 percentage points to 1.71 percent in December,” he stated.

Emefiele said the Bank’s Monetary Policy Committee (MPC), however, noted that headline inflation, at over 21 percent, unacceptably remained at a growth-inhibiting level and must be resolutely tackled in the economy.

On measures to tackle inflationary trend

He explained how the global economic forces, infrastructure and energy drawbacks, security challenges, electioneering cycle, logistical and distribution inadequacies are inducing domestic inflation.

He, however, said “some of these factors are being tackled through our developmental initiatives. “Near-term outlook suggests noticeable disinflation in 2023 if adequate policy measures are timeously undertaken.”

Emefiele also disclosed that available data and forecasts for key macroeconomic indicators for Nigeria suggest that the economy will continue to grow through 2023, “but at a subdued pace”.

As regards the key factors responsible for this development, he noted: “The continued high level of insecurity; perennial scarcity of Premium Motor Spirit (PMS) and high cost of other energy sources; increased spending towards the 2023 General Elections; rising cost of debt servicing; and deteriorating fiscal balances, remain the key sources of shocks” to the Nigerian economy with 3.01 percent projected growth by the CBN estimate.

Rationale for MPC, cash withdrawal policies

According to Governor of CBN, Nigeria’s inflation at over 21 percent is still “hugely damaging to the economy and growth-retarding.”

He stated that only further monetary tightening was considered appropriate, because “a loosening or hold decision under a double-digit inflationary condition will be tantamount to an immediate reversal of the downward trend in inflation.

“We also believe that the current naira redesign and cash withdrawal limit policies, by moderating currency outside the banking system could further engender disinflation.”

He further said the MPC considered a tightening stance would signal confidence in the effectiveness of its monetary policy direction to rein in inflation, improve financial system stability, and moderate exchange rate, and raise the MPR by 100 basis points to 17.5 percent, retain the CRR at 32.5 percent, and retain the Liquidity Ratio at 30 percent in the economy.

Constitutional mandate for Naira redesign, circulation policy

Emefiele also shed more light on how the Central Bank of Nigeria received the approval of President Muhammadu Buhari 26 October 26, 2022, to redesign and distribute the N200, N500, and N1000 banknotes.

“By the approval, the redesigned banknotes were to circulate concurrently with the old notes, up to 31 January 2023 after which the old notes were to lose their legal tender status. “However, given the need to improve the level of circulation of the new notes, the President magnanimously extended the deadline by another 10 days to 10 February 2023 for old notes to circulate as legal tender.”

In regard to currency management in the country, Emefiele clarified this is a key function of the Central Bank of Nigeria, as enshrined in Section 2(b) of the CBN Act 2007.

“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,” he said.

He explained that due to persistent challenges that are inundating currency management in Nigeria and undermining our sovereign integrity, the CBN conducted extensive inhouse analysis and consultation suggesting the need for a policy to redesign some Nigerian banknotes.

The CBN Governor stated that the currency redesign policy is also consistent with Sections 20(3), which gives the Bank the power to recall extant banknotes or coins following the approval of the President and a reasonable notice period.

“Our actions, thus, falls squarely within the bounds of the powers provided by the Act, as we sought and got Presidential approval and gave 100 days’ notice in the first instance, which was later extended by another 10 days,” he stressed.

According to him, the general practice across the globe is for Central Banks to redesign national currency within 5-8 years. However, at the outset of this currency redesign programme, he noted that the country had not dobe so for over 19 years.

Fundamental objectives of Naira redesign policy

Emefiele also disclosed to members of the diplomatic corps that “our principal aim with the currency redesign initiative, is to make our Monetary Policy decisions more efficacious and like you can see; we have started to see inflation trending downwards and exchange rates relatively stable.

“Secondly, we aim to increase financial inclusion in the country by reducing the number of the unbanked population.

“Thirdly, our aim is to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria through this programme and we can see that the Military are making good progress in this important task.”

Benefits of redesign policy to consumers, Nigerian economy

He explained the expected benefits of the Naira redesign policy, and said the project is designed to strengthen the performance of key macroeconomic parameters and equally combat social improprieties.

He stated: “Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market.

“By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation.”

He added: “The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth.”

He particularly attributed the current queues and pressure to access the new banknotes to hoarding, “tension and elevated agitations” by leaders, and “predatory activities of some vendors and unscrupulous Nigerians.”

He said: “We have noticed that some members of the public are hoarding the new notes thereby restricting their flow through the economy. “Cash kept at home will not circulate but may fuel a perception of scarcity which leads to higher demand for the currency, signalling to those who don’t have an urgent or immediate need to store cash.”

Emefiele stated there are “tremendous tension and elevated agitation by our leaders who should be calming frayed nerves by the citizens.

“We believe that a large proportion of these agitations are staged and sponsored propagandas or an exaggeration of the reality.”

The CBN, he said, also noted that some politicians are buying the new notes and storing them for

Banks, electronic payments ecosystem and ‘economic opportunism’

On incidence  of economic opportunism amid Naira scarcity, Emefiele stressed the apex bank noticed that some Nigerians and institutions are capitalising on the transition to charge exorbitant fees or demand cash payment on the false pretext that Point of Sale (PoS) terminals don’t work, especially at filling stations.

“These selfish actions for personal monetary gain are creating hardship for Nigerians and may come at the expense of fellow citizens lives and livelihood,” he stated.

He, therefore, reassured the Nigerian consumers, that the CBN makes available “an appropriate amount” of currency (redesigned N200, N500, and N1,000 denominations and current N100, N50, N20, N10 and N5 denominations) to support economic activities in Nigeria.

Emefiele said: “The Bank is collaborating with the entire financial ecosystem DMBs, OFIs, MMOs, Super Agents, MFBs Payment System Providers and EFCC, ICPC, and other law enforcement to ensure that Nigerians have a variety of options for financial transactions either through electronic channels or in exceptional circumstances, cash.

“The CBN remains committed to ensuring a seamless, inclusive and equitable implementation of this exercise for the overall benefit of the people, financial system and Nigerian economy as a whole.”

He, therefore, urged the diplomatic community and Nigerians to accept the currency redesign policy.

Speaking on Emefiele’s Tuesday meeting with members of the diplomatic corps, Zubair Dada, Honourable Minister of State for Foreign Affairs, reportedly explained that the briefing became necessary as part of efforts at intimating members of the corps with the Federal Government’s economic policy vis-a-vis the Naira redesign.

Dada also assured of the Nigerian Government’s commitment to ensuring that the diplomatic and consular missions perform their duties with ease just as the government takes steps to ameliorate their plight in the economy.