Amid an over-charged political environment with surging thuggery and hooliganism, the Central Bank of Nigeria (CBN) announced its plan to redesign the naira, focusing on the 200, 500 and 1000 naira notes.
No government policy or decision has so dominated socio-economic and even political discourse in this country in recent history. And that is understandable. The plan is a sweet bitter pill that has thrown up many economic analysts in the land.
The embattled governor of the apex bank, Godwin Emefiele, explained while announcing the decision that the redesigning of the naira is for economic reasons, which include reducing inflation, combating counterfeiting, checking insecurity and putting more money into circulation, as he estimated that 85 percent of all money in Nigeria is stashed away in homes, outside the banking system.
To us, the economic and social reasons for the naira redesigning are valid but implementing them, within the short time frame in a fragile economy, will be a herculean task
We see this as a good idea, good intention, more so as it is hoped that it will also help to minimise the influence of money on the country’s electoral process by discouraging vote-buying and inducement of electoral officers at both upper and lower levels.
But we are afraid of the timing. Many experts have argued that the timing of the exercise is very wrong and we cannot agree less. The CBN plans to execute this project in a matter of six weeks beginning from December 15, when the new notes will be introduced into the financial system, and ending on January 31, 2023, when the current notes will cease to be legal tender.
This, in our view, is too hasty and it is coming too close to the festive season of Christmas and New Year celebration, which marks the height of commerce. This is not a good period to ask people to pay in their money.
Again, January 31 is too close to the February 2023 general elections and the expected national census in April of the same year. We see all these piling enormous pressure on an economy that is already gasping for breath.
The impact of this decision is already being felt ahead of the time. From N750/$, the naira now exchanges N860 for a dollar and it is feared that it may hit N1000 for a dollar sooner than later.
We are worried more on the toll it is already taking on goods import ahead of Christmas, as data from Apapa Wharf and Tin Can Island ports in Lagos show. The data show up to 50 percent drop in the number of containers being presented daily for Customs examination, which signposts scarcity and price hike during the festive season.
We see the CBN also operating under intense pressure. It estimates naira in circulation at N3.2 trillion which must be exchanged successfully between December 15, 2022, and January 31, 2023. These two dates are only 33 working days apart and there are 5,158 commercial bank branches nationwide. This means that more than N86 billion in cash must be exchanged daily across the country.
Furthermore, we fear that this exercise will leave Nigerians and the economy with more pains than the expected gains. We agree with Ayo Teriba, chief executive officer of the Economic Associates, who feels that 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, noting that 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.
As well intentioned as this decision seems, we have everything to condemn about its timing plus the attendant and unintended consequences. We would urge the CBN to look back to history and also learn from case studies outside our shores.
In 1984, a comprehensive currency change was carried out by the central bank when this same Muhammadu Buhari was military head of state. The impact of that change left many individuals, households, institutions and small businesses prostrated.
Similarly, in 2016, India abruptly announced a demonetisation project that mandated the withdrawal of the country’s two highest denomination currency notes (Rs500 and Rs1,000) from the market. The two denominations were 86 percent of the currency in circulation at the time in terms of value.
The Indian government expected that the plan would strike a significant blow against corruption and counterfeiting, and would kick-start the country’s transition into a digital and cashless world. This plan mostly backfired.
It is important to point out that where the Indian government had expected money hoarders to destroy their stashes rather than declare them, which would deliver a bottom-line bonanza to the country, the hoarders did otherwise.
In 2018, the Reserve Bank of India (RBI), the country’s central bank, confirmed that 99.3 percent of the demonetised notes had been returned to the banks. This meant that almost nothing was destroyed.
We are afraid that this may be CBN’s experience at the end of the day. Already, dollar scarcity is hitting the exchange market in the head. We see much of the money outside the banking system exchanging for the dollars even at N1000 for a dollar, meaning that, at the end of the day, nothing is achieved.
In Nigeria, corruption is a hydrated-headed monster and the more it changes, the more it remains the same.
To us, the economic and social reasons for the naira redesigning are valid but implementing them, within the short time frame in a fragile economy, will be a herculean task. We therefore, advise that the CBN should reconsider its decision on the timing bearing in mind that the economy is already bleeding and may bleed more as a result.
