On Wednesday, October 26, 2022, at a hurriedly organised press conference, the governor of the Central Bank of Nigeria transmitted the news that new Naira notes will be introduced on December 8, 2022, to replace the existing N200, N500, and N1,000 notes.
The old notes would remain legal tender till the end of January 2023. He urged citizens to take advantage of the window before the introduction of the new notes to commence immediately to make lodgments with the banks.
The governor explained that change of currency is recommended within the interval of 5 to 7 years, but the last time Nigeria embarked on this exercise was in 1984. And therefore this exercise is overdue going by received wisdom.
The governor gave other reasons for the introduction of the notes as due to the need to urgently correct the existing scenario whereby 85 percent of the currency in circulation is outside the banking system.
He emphasised the urgency of the need for the CBN to reclaim currency management, which as per the Act establishing the CBN is its exclusive preserve and could not have been more pressing.
And it is expected in the process to deal a deadly body blow on the thriving and dangerous burgeoning kidnappings and ransom payment industry. It is also expected that the exercise will seriously affect those who have turned currency counterfeiting as a major occupation.
Some of the other anticipated positive fallouts of the exercise are reduction in the rate of inflation as well as should be expected to give the exchange rate a boost.
The possibilities of this exercise are there waiting to be tapped for as far as all concerned are prepared to act timeously. Intelligence gathered from the exercise is expected to positively impact the Treasury situation as an opportunity of this exercise could be seized to expand the tax net, leveraging on inherent intelligence.
This will assist in getting some economic agents who have not been paying tax to begin to do so. In fact, a trail on heavy cash users could throw open a vista of possibilities.
As should be expected, the reactions have been fast, furious and thick. The CBN has been accused of misplaced priority as it has left the urgent business of defending the value of rate of exchange of the Naira, which has been on a free fall at the parallel market.
Of course, with the inevitable demand that the governor of the central bank should be immediately sacked for his crass incompetence.
With some organised bodies calling for policy revision and that the date allowed for the exercise is unrealistic considering the extent of work load envisaged and that available infrastructure might not be able to cope.
Honestly, one must not envy anyone charged with the responsibility for taking such decisions in our polity.
Some have claimed that it is a grand strategy to put the President’s portrait on the new notes, particularly as his in-law is now the managing director at the MINT. Some have also alleged that it is a ploy to remove the controversial Islamic inscription (Ajamin) on the currency.
There is also the accusation that the ruling party wants to seize the opportunity to starve the opposition parties of cash to undermine their electoral fortunes.
And that all this is an attempt to disrupt elections 2023 just as insecurity is claimed to be stage managed for confusion to reign in the land leading to the inevitable postponement of elections 2023 for preferred Interim Government to be headed by General Dambazue (rtd).
We shall now look at some of this reactions, particularly those that border on technical knowledge while dodging those that have a tinge of wild speculations. Managing the rate of exchange should be prioritised.
Those who make this suggestion forget to remember that the governor has made it clear on more than one occasion that the CBN does not take its bearing from the parallel market rates.
Besides, the considerations that the market is illegal, we are informed that it lacks the depth to command the attention being now accorded to it. And what is more important is that there is really nothing the governor could do at this material time to stem the slide in value of the Naira.
The country has a rather limited ability currently to earn dollars. What is imperative and urgent now is to find opportunities to export and earn foreign exchange. And to eliminate as quickly as possible those aspects of our economy that are heavily dependent on foreign exchange such as the importation of refined products.
Did someone announce that Dangote Refinery is ready to commence production? That is music to the ears as we cannot wait to end refined products importation.
On the issue of timing as it is likely to affect the attention needed for 2023 elections and the possibility that the currency change exercise could be used to undermine the fortunes of the opposition parties as they are denied access.
The legitimate monies which belong to parties should be safe with the banks. The only currency stock likely to be affected are those held by party stalwarts, and sorry, we offer no apologies.
Read also: The Naira rebrand farce and unwarranted pain of living or doing business in Nigeria
It is time to deemphasise even criminalise the use of money at the polls. As we expect elections 2023 to deliver expected results we are not too concerned with such possibilities.
There has been some arguments raging with regard to the possibilities of the exercise impacting positively on the rate of inflation as well as exchange rates. And we are a bit surprised. The whole idea behind the Open Market Operations (OMO) undertaken by the CBN is based on the same rationalisation.
When inflation is high and surging, central banks raise interest rates to mop up liquidity and the reverse is the case if it wants to reflate the economy to inject more funds. This is exactly what is happening in many countries today.
Currency change would brutally reduce liquidity, particularly of the nature of illegally accumulated funds, as they are demonetised. And therefore such a development should lead to a reduction in the rate of inflation.
Similarly, the rates of exchange is firmed up as the ability to demand for dollars is reduced as Naira is drained from outside the banks. I didn’t therefore quite honestly understand the rationale for the disputation.
An immediate outcome of this announcement as should be expected is that rates cascaded at the parallel market as economic agents in possession of large amounts of Naira particularly illegally earned sought safety in dollars.
Why the CBN must show some concern is that the arbitrage opportunities will be so more tempting as to make round tripping almost irresistible. May be if at all possible some dollars could be released to Bureau de Change to increase supply and mitigate the free fall which the Naira is currently experiencing.
The monetary authorities must move to make the entire exercise as seamless as possible by being intentional with confronting any obstacles that might arise.
We must ensure that the notes are available in the right quantities on the commencement date and that the banks are encouraged to be ready to undertake the task through the deployment of appropriate and adequate staff as well as infrastructure. Beyond this deadline we must adopt a mindset that no one in legitimate possession of Naira should lose value for as long as they are in a position to approach the banks.
Therefore anything that could be done including deadline extension must be all on the table. I wish us God’s speed to conclude this exercise and achieve most of its key objectives. Shalom.
Chizea is a guest writer
