Leading economic experts in Nigeria have disagreed with the Central Bank of Nigeria (CBN) over the move to redesign four out of the eight currency notes in circulation.
At a press conference Wednesday in Abuja, the nation’s capital, Godwin Emefiele, CBN governor, said the move was to address currency hoarding by the members of the public, reduce counterfeiting, make available more clean notes and stop currency mutilation. The currency units that will be redesigned are the N100, N200, N500 and N1000 notes.
“As you all may be aware, currency management is a key function of the Central Bank of Nigeria, as enshrined in Section 2 (b) of the CBN Act 2007. In recent times, however, currency management has faced several daunting challenges that have continued to escalate in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country,” Emefiele said.
Based on CBN data, the total money stock in Nigeria (M3) increased by 9.2 percent from N45.19 trillion in January 2022 to N49.36 trillion as of August. Narrow money supply (M2) rose by 9.4 percent from N45.09 trillion to N49.31 trillion during the same period.
While M3 and M2 rose, the currency in circulation declined by 2.4 percent to N3.21 trillion in August, down from N3.29 trillion in January. Similarly, currency outside banks fell by 3.6 percent to N2.68 trillion in August from N2.78 trillion in January.
From January to August, currency outside banks represented an average of 83.8 percent of the total currency in circulation.
Zainab Ahmad, minister of finance, budget and planning, added more conditions to the currency redesigning policy of the CBN.
The new conditions include that banks must only accept cash from customers with full KYC and bank accounts; cash must only be paid into customers’ accounts; cash must not be paid into ledgers or suspense accounts; CBN and Economic and Financial Crimes Commission (EFCC) will be tracking all deposits, and that old currency will become useless on January 31, 2023.
She said on her LinkedIn handle that the CBN will no longer print large quantities of cash as a new cashless policy will be announced in January as banks that receive cash from non-account holders or customers will be penalised by CBN and EFCC.
Ayo Teriba, chief executive officer of the Economic Associates, queries the timing and relevance of the new CBN policy when general elections are about to take place in Nigeria.
He said: “Replacing old currency notes with new ones is a routine exercise which central banks make no noise about. Old notes are gradually replaced with new ones once they get back to the banking system.
“Proposing a sudden withdrawal of notes for replacement with redesigned notes is of no benefit to the country, but will come at huge costs. Fixing the deadline two to three weeks ahead of Christmas/New Year festivities, two months ahead of a general election, is as disruptive as it is insensitive.”
Teriba said Nigerians are already enduring a lot of disruptions that range from local foreign exchange supply, exchange rate, and interest rate shocks that are aggravating the global food and energy shocks.
He said Nigerians should be spared what he described as “the wild goose chase so close to the yuletide and the polls”.
“It is sheer waste of the nation’s time and resources to be re-designing the N100 (equivalent to $20 cents) to N1000 (equivalent to $2) as these are ripe for replacement with naira coins to make room for the immediate introduction of N2000 (equivalent to $4) to N10,000 (equivalent to $40) denominations of Naira notes that will be more in line with the value of currency note circulating in other climes,” he added.
Read also: Explainer: What CBN’s naira notes redesign means for the economy
Boboye Olaolu, a macroeconomist with CardinalStone, said the CBN embarked on the redesigning of new notes to curb the demand side triggers on inflation, reduce the money laundering as well tame the currency in circulation.
“The CBN wanted to address the demand side triggers on inflation, reduce money laundry as well encourage the inflow of cash into the banking system,” Boboye said.
According to him, the downside risks are the cost of printing new notes, cost of destroying old notes, and the rationale for printing new notes when the CBN is driving the use of eNaira. The transactions executed through eNaira as of October 2022 amounted to N4.4 billion when CBN the first eNaira anniversary.
Another economic expert who did not want his name in print said the policy is just a legacy thing for Emefiele.
“I think it is just a legacy for the central bank governor. Countries change or update their currencies all the time and it is just refreshing mainly to fight counterfeiting and to incorporate new tech or security features in notes. Minus the administrative hiccups and stress, it is just another exercise,” he said.
Economist Bismarck Rewane’s Financial Derivatives Company, while maintaining that the effect of the policy should be neutral, said due to the timing of the project, at a festive period coupled with the approaching general elections, GDP or output could be affected.
“To the extent that economic agents especially market women in the middle of December will be constrained to exchange goods for a currency that will cease to be legal tender in 45 days. It could discourage them from accepting the old notes and therefore will reduce aggregate demand and affect the supply of goods. In other words, it could lead to a fall in GDP and output,” the FDC said in a note to investors.
