New Telegraph

Naira Redesign: CBN’s trump card against currency abuse

The Central Bank of Nigeria’s (CBN) surprise announcement last Wednesday that it was set to change the design of three– N200, N500 and N1,000– of the eight denominations of the country’s legal tender, could be the apex bank’s trump card not only in its battle to curb currency counterfeiting, but also to boost its cashless policy, writes Tony Chukwunyem

 

In his remarks at the “eNaira one year anniversary” event held in Lagos last Tuesday, Governor, Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, had hinted that the apex bank would, starting from the following day (Wednesday, October 26), start making major pronouncements that would be directed at ensuring a 100 per cent cashless economy.

 

Specifically, the CBN Governor said: “The destination as far as I am concerned is to achieve 100 per cent cashless economy in Nigeria. I know that those who doubt us will say that 100 per cent cashless is unattainable.

Yes; it is true, but Nigeria must move from being a predominantly cash economy to a predominantly cashless economy. “At this time, I can say from what I have read from online banking to POS to ATM, mobile banking working and collaborating with what I want to say we have provided all the needed infrastructure that will enable us make cashless a nationwide journey.

 

It is not something that some of us will like but we would in the coming weeks and months make pronouncements that must make cashless go nationwide. “I believe part of those pronouncements will begin from tomorrow and there will be some breaking news tomorrow. Even the Bankers’ Committee will hold a special meeting tomorrow to deliberate on this, so let us expect the news.”

‘Breaking news

However, hardly anyone could have guessed that the “breaking news” that Emefiele had told Nigerians to expect would be an announcement that the apex bank had obtained President Muhammadu Buhari’s approval to change the design of the N200, N500 and N1,000 denominations.

The CBN Governor, who made the announcement at a special press conference, had stated that the new currency notes would become legal tender as from December 15, 2022, adding that the old and new notes would circulate concurrently for a period of 45 days up until January 31, 2022, when the former will cease to be legal tender.

 

He explained that the move was aimed at checking the increasing ease and risk of currency counter-  feiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.

 

Emefiele said there was significant hoarding of naira notes by members of the public, with data showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks. He said as of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable.

 

He announced that all banks currently holding the existing denominations of the currency could start returning the notes to the CBN immediately, stressing that the newly designed banknotes would be released to the banks on a first come, first served basis. Emefiele also urged bank customers to begin depositing into their bank accounts the existing currency notes to enable them to withdraw the new banknotes once circulation begins in mid-December 2022.

Debate

Given that currency restructuring exercises carried out by the CBN almost always generate heated debate in the country, the latest attempt by the apex bank has not been an exception. Indeed, similar to its effort to introduce a N5,000 note (which was later suspended by the then President, Goodluck Jonathan), the apex bank’s current naira redesign plan has come under some serious criticism especially with regard to its timing.

 

For instance, the Organised Private Sector (OPS), especially the Lagos Chamber of Commerce and Industry (LCCI), has complained that implementing the naira redesign plan during the Christmas season and close to the elections could result in significant disruptions to businesses that are already grappling with challenges such as forex scarcity and insecurity across the country.

However, the CBN’s response to the criticisms showed that the regulator had other objectives in mind for conceiving the naira redesign plan apart from the ones cited by Emefiele when he made the announcement last Wednesday.

 

For instance, appearing on  Arise TV’s Morning Show last Friday to speak on the subject, the Director, Monetary Policy Department at the apex bank, Dr. Hassan Mahmud, disclosed that of the N2.7trillion or 85 per cent of the currency that is outside the banking system, more than 90 per cent are high denomination banknotes.

Cashless policy

Mahmud, who appeared on the programme along with the Director, Currency Operations at the CBN, Ahmad Umar, stated that the apex bank was not expecting the naira redesign plan to cause a lot of disruptions as its main target are very wealthy members of the public, who already have bank accounts and have also adopted electronic payments.

He said: “The CBN Governor mentioned that we have a period of close to 100 days, which is almost three months and above, for this (plan) to crystalise. But like we have always emphasised, that we would want to go cashless. There are other channels with which you can make payments. Even if you want to buy ram or Christmas turkey, there are other channels you can pay with and they are in abundance.

“Of the 2.7trillion or 85 per cent of the currency that is outside the banks, more than 90 per cent of those currencies are high denomination. And if they are high denomination, basically, the people that are holding N10,000, N100,000, and son on are not the fish we are targeting. What we are looking at is those that have billions.

 

“Don’t forget that this is not just for you to take your money to the bank and it is changed; the money should go to your account. So, if it goes into your account, you can use your mobile apps, your eNaira, to make payments.

So, you don’t necessarily need the cash.” The CBN Director noted that the naira redesign plan was also an opportunity to get more Nigerians to embrace the regulator’s cashless policy thereby boosting financial inclusion. According to him, “the transformation of the payment system landscape has been phenomenal so why waste those resources in technology and infrastructure that people are not using.

So maybe this will be an opportunity for mor adoption of those e-payment options because if you are not pushed to do something…, change is extremely difficult especially in  our environment where literacy and education are a bit limited and there is that scepticism that ‘my money may get lost.’ But a lot of campaign and sensitisation has gone onboard. So, the timing, as far as we are concerned, is well calculated.”

He, however, said that the CBN would respond “appropriately” if implementation of the plan faces challenges. Mahmud disclosed that a committee had been set up, which is headed by Deputy Governor, Operations, at the CBN to look at modalities of having a seamless implementation of the exercise so that disruptions will not be recorded.

Responding to a question on whether the cost of redesigning the three naira denominations would not be prohibitive, especially given that the government is currently grappling with inadequate revenues, he stated that minting high denomination naira notes would cost the CBN less than minting the lower denomination, adding that benefits of the plan outweigh its costs. He said: “The currency that is going to be redesigned is the higher denomination.

 

We get the more seigniorage losses from the lower denominations because the cost of minting those ones is higher than the intrinsic value of the notes. The point being emphasised here is that cost is not largely going to be of such a volume that will negate or net out the benefits of what we want to achieve.

What is important is how the central bank is able to achieve its primary mandate, which includes other mandates of ensuring an efficient and durable currency, coupled with the fact that it is legal tender and also used for payment settlement within the economy.”

 

On reports that the naira redesign announcement led to people choosing to buy dollars instead of depositing naira in their bank accounts, thus resulting in further weakening of the naira on the parallel market, the Director, Currency Operations, Umar, noted that the Association of Bureaux De Change Operators of Nigeria (ABCON) had warned its members to be cautious about selling dollars between now and January 31. He said: “Basically, you can say that people are just panicking and trying to exchange the excess naira they have for the dollar.

 

But then we have to remember that the BDC segment of the market is just less than five percent of the entire fx market. “I imagine that as we progress, receiving naira deposits from banks, the BDCs themselves will be in a quagmire where they would not be able to explain their source of getting so much money because let us say, for example they are doing a ticket of $5,000 in a day, if they deposit N20million, that day and N20 million the next day, obviously they should know that is above the exchange rate value of that $5,000 in the parallel market.

 

“They are aware. The national executive committee of the BDCs led by ABCON has sent out a message to all their members, warning them that they should be careful that this is the time    where a lot of issues, like counterfeiting, people trying to pass fake notes into the system can hit the BDCs themselves and then, there are issues around know your customers (KYC) and then due diligence. The association enjoined them to keep records of all their transactions because ultimately it will come to that.”

Finance minister’s disavowal

However, at about the time the two CBN Directors were defending the naira redesign plan on the TV programme, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, was telling a Senate Committee that her Ministry was not consulted by the CBN before it announced the plan.

She also expressed concern that the move could negatively impact the naira. But in a swift reaction to the Minister’s claims, CBN Director in charge of Corporate Communication, Mr. Osita Nwanisobi, stressed that the apex bank remained a “very thorough institution that follows due process in its policy actions.”

He said the CBN management, in line with provisions of Section 2(b), Section 18(a), and Section 19(a)(b) of the CBN Act 2007, had duly sought and obtained the approval of President Muhammadu Buhari in writing to redesign, produce, release and circulate new series of N200, N500, and N1,000 banknotes.

He noted that currency management in the country had faced several escalating challenges, which threatened the integrity of the naira, the CBN, and the country in general, adding that every top-rate central bank was committed to safeguarding the integrity of the local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy.

Assuring Nigerians that the currency redesign exercise was purely a central banking exercise and not targeted at any group, the CBN spokesman expressed optimism that the effort would, among other goals, deepen Nigeria’s push to entrench a cashless economy in the face of increased minting of the eNaira.

Conclusion

Although financial experts are still divided over the issue, the consensus in industry circles is that a seamless implementation of the plan would enable the CBN achieve a number of its key goals, including boosting the cashless policy.

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