BY ROTIMI DUROJAIYE
When the Central Bank of Nigeria introduced the Naira redesign policy in October, 2022, it informed the public that it was meant to check abuse of naira, contain inflation and ensure control of the volume of naira notes in circulation.
Among other gains, the CBN Governor, Godwin Emefiele, said the step would also help to deepen the drive to entrench a cashless economy in the country.
Emefiele, who announced the plans to redesign the N200, N500 and N1,000 denominations, said that the process was in line with the apex bank’s key function of national currency management.
He said that out of the N3.2 trillion the apex put in circulation between 2015 and October 2022, only N500 billion was within the banking system, with N2.7 trillion permanently outside the banks.
According to him, maintaining the integrity of a legal tender and the efficiency of its supply are some of the functions of a great central bank.
“In recent times, currency management has faced several challenges that have continued to escalate in scale and sophistication, with unintended consequences for both the CBN and the country.
“On the basis of these, and in line with the provision of CBN Act, the management of the CBN has sought and obtained the approval of President Muhammadu Buhari to redesign, produce, release and circulate new series of banknotes at N200, N500 and N1,000.
“The standard practice globally is for central banks to redesign, produce and circulate new local legal tender every five to eight years,” he said, adding that in the case of naira, the last attempt at such was 20 years ago.
POLICY FLIP-FLOP
However, the policy soon ran into troubled waters, as the CBN, after mopping up existing banknotes, was not able to make adequate supply of the redesigned banknotes to deposit money banks even after placing restrictions on withdrawal limits.
This created a scenario where bank customers were stranded, with no access to cash, while inadequate internet infrastructure in commercial banks also made it frustrating for them to execute online banking transactions.
Some state governors who kicked against the policy due to the untoward hardship it inflicted on Nigerians, approached the Supreme Court to intervene on the issue.
The governors accused Emefiele of misinforming the president about the negative implications of the policy.
On March 4, the Supreme Court passed a judgment invalidating the Naira redesign policy on the grounds that it was not done with due consultation and in line with constitutional provisions.
The apex court, thus ordered that the old Naira notes should continue to be used side by side with the new Naira notes until December 31, 2023.
Consequently, financial experts have expressed diverse views about the initiative. While some have commended it, saying that it would contribute to stabilising the Naira, others condemned its timing.
“The prospects of the policy having a positive impact on the nation’s economy had been blighted by its poor implementation”
An ex-banker, Tope Fasua, said the measure would have a significant effect on the economy, adding that it was essentially about “black money.’
“When central banks do this, they try to pull in money people are hiding; illegal money, corruption money, kidnapping money. Nigeria has managed to become a hub for these kinds of illegalities.
“I will even suggest that the CBN does this more often, maybe every 10 years. You will see a scenario where the banks are awash with liquidity.
“There are many people sitting on billions in naira, and even in dollars. The CBN should also see how it can pull in the dollars,” he said.
However, other financial experts say the challenges facing the economy as enumerated by the Emefiele cannot be tackled by mere redesign.
Okechukwu Unegbu, the past president of Chartered Institute of Bankers of Nigeria, said redesigning the naira was not the most important problem facing the economy.
Unegbu, said the apex bank should have tasked itself with ensuring the availability of lower naira denominations, like N50, N100 and N200.
Unegbu argued that embarking on a cashless economy can only be successful in a literate society with the right infrastructure.
“There is no problem with the cashless policy but because of the state of the economy and the level of illiteracy, the CBN should have started implementation in phases.
“Cashless policy should start from urban and commercial centres like Lagos, Abuja, Port Harcourt and Kano before moving to the rural communities.
“You cannot make such a blanket decision in the Nigerian system because of the way we are. The shortage of cash is worse in rural communities, where some people have never even sighted the new notes,” Unegbu said.
According to Muktar Muhammed, the prospects of the policy having a positive impact on the nation’s economy had been blighted by its poor implementation.
“It is a good policy but poorly implemented because we did not take into consideration the Nigeria factor.
“It was not driven entirely by economic considerations. We had to contend with political consideration as it relates to vote-buying and we had the security consideration,’’ he said.
Muhammed stressed that the policy had done some damage to the informal sector, although he believes that in the long run, the sector will find it beneficial.
“Some of the small businesses have started to open bank accounts because they realised that it is the only way they can do business.
“It has also helped in stabilising the exchange rate, from between N800 and N900 to the dollar to around N750 to the dollar.
“That is still not good enough, but it is better considering where we are coming from,’’ the investment banker said.
Isa AbdulMumin, the Acting Director, Corporate Communications, CBN, had explained that the apex bank was making efforts to ensure that enough naira notes were injected into the economy to ameliorate the hardship associated with lack of cash.
AbdulMumin said two weeks ago that the CBN also directed all deposit money banks to open for operation on Saturdays and Sundays to meet their customers’ cash demand.
The apex bank said it has sufficient new naira notes to meet the financial needs of the citizenry.
The CBN equally dismissed speculations over the inadequacy of the newly redesigned naira notes in the banks, saying there is sufficient quantity in circulation.
“I can assure everyone that the new notes will circulate. So, as transactions take place, you are going to be having the new ones.
“As people are giving out the old notes, they’ll be receiving the new notes”, said Abiola Omotoso, the Controller of Ekiti State branch of the bank.
Stakeholders say they are hopeful that the apex bank will take advantage of the December 31 window given by the Supreme Court to perfect the Naira redesign policy implementation including directing banks to expand their internet infrastructure.
Partygoers mop up large amounts of redesigned currency
Unfortunately, while the new naira notes are causing long queues at ATMs, there’s an abundance of it at parties of late.
While there are videos of people spraying the new naira notes at parties circulated on social media, others faced long lines and waited at ATMs to obtain the new currency.
It was gathered that after the rollout of the new naira, some partygoers, high net worth customers, also known as priority customers of lenders, and currency traffickers collaborated with bank staff to mop up large amounts of the redesigned naira notes.
The Point gathered that there are several reasons why some Nigerians enjoy paying a premium to have their currency notes sprayed with mint. Generally, Nigerians tend to be extravagant, and dramatic, and love having and love to have a good time. This reality is obvious at our ceremonies and functions.
Also, some people believe that the mint spray has a refreshing scent and makes handling cash more enjoyable. Additionally, some people believe that mint spray has antimicrobial properties that help to reduce the spread of germs, which is important in a country with a high population density. Finally, for some, the mint spray has become a status symbol and is seen as a sign of wealth and sophistication.
The binders holding the bundles of naira are not stamped and do not have bank names printed on them, raising suspicions.
This could only mean that these bundles are money meant for a commercial bank that did not go into the banking system and got to the public through other means.
The lack of stamps and bank names on the binders of the bundles infers that those notes were not issued in a banking hall nor collected at an ATM. The package in polythene shows that they are directly from the mint.
The CBN views the cashless policy as a means to reduce the amount of physical cash in circulation, encouraging the use of electronic platforms for settlement or payment for goods and services.
The redesign of the new notes and submission of the old notes and cash withdrawal policy was to attract up to N2.65 trillion ($6 billion) that were outside the banking sector as of November last year.
Excess notes such as this contravene the CBN cashless policy that wants to bring all money into the banking system.
In a press release by the CBN on February 2, signed by Osita Nwanisobi, its immediate past Director of Corporate Communications, the issue of spraying of naira notes, and activities of persons who sell the newly redesigned banknotes was addressed.
“We wish to state unequivocally that, contrary to the practice of these unpatriotic persons, it is unlawful to sell the Naira, hurl (spray), or stamp on the currency under any circumstance whatsoever,” it said.
Laws regarding these issues were stated in the press release.
“For the avoidance of doubt, Section 21(3) of the Central Bank of Nigeria Act 2007 (As amended) stipulates that “spraying of, dancing or matching on the Naira or any note issued by the Bank during social occasions or otherwise howsoever shall constitute abuse and defacing of the Naira or such note and shall be punishable under the law by fines or imprisonment or both.
“Similarly, Section 21(4) states that “It shall also be an offence punishable under Sub-section (1) of this section for any person to hawk, sell or otherwise trade in the Naira notes, coins or any other note issued by the Bank.”
It stated that the CBN is collaborating with the Nigeria Police, Federal Inland Revenue Service, the Economic and Financial Crimes Commission and the Nigerian Financial Intelligence Unit to address the unpatriotic practice.
Banks’ deposits with CBN drop by 95.82%
Meanwhile, commercial banks’ deposits with the CBN, known as Standing Deposit Facility has dropped by 95.82 percent in less than two months due to cash crunch, occasioned by the naira redesign management.
“If customers had to go through so much trouble to access their hard earned deposits with banks unsuccessfully in many cases even for the most basic of needs like food and medicines, it should be expected that they will not be in a hurry to take their cash to the banks anytime soon”
Data from the CBN’s website shows that banks’ deposit with their regulator dropped to N4.69 billion as of April 4, 2023 from N112.24 billion in February 10, 2023, the extended timeline for the return of high value naira.
Standing facilities (deposit and lending) are instruments of liquidity management, according to the CBN. They serve as avenues to invest surplus funds overnight and to square up whenever the system is short at the end of each business day.
“Poorly executed Naira redesign policy led to a cash crunch across Nigeria,” said analysts at FSDH Research in a new report.
The public had until the deadline of January 31 (extended to February 10 and 17) to return the old currency to commercial banks. The CBN also limited over-the-counter cash withdrawal to N100, 000 and N500, 000 per week for individual and corporate organisations, respectively.
This was subsequently increased to N500, 000 and N5, 000,000 respectively.
New Naira notes were printed but were not circulated effectively. This created panic among citizens as the old notes were declared as no longer being legal tender.
“Many individuals have lost trust in several banks due to sub-optimal performance of payment platforms and rationing of cash withdrawal,” the FSDH report said.
Chief executive officer, The Centre for the Promotion of Private Enterprise, Muda Yusuf, said the cash crisis experienced by bank customers had a profound impact on their confidence regarding cash deposits.
He said it would take some time for this confidence to be restored, adding that the agony of being dispossessed of one’s cash and resultant negative effects on the welfare and livelihoods of citizens cannot be forgotten in a hurry.
“The reality is that the cash situation is yet to normalise. Though the scarcity has eased, cash availability is still an issue. Until the cash supply gets to a saturation point, it will be difficult to convince the citizens to deposit their cash in the banks.
“This is one of the unintended consequences of the poorly implemented cash redesign policy of the CBN. What we are witnessing is the exact opposite of what the cash-less policy was meant to achieve. There is likely to be an increase in the amount of cash held outside the banking system. But we could see a reversal if access to cash eases considerably,” Yusuf said.
According to Taiwo Oyedele, head of tax and corporate advisory services at PwC Nigeria, as a result of how the CBN went about the currency redesign and the cashless economy, one of the consequences as some commentators have described it is inadvertently unbanking the bank.
“If customers had to go through so much trouble to access their hard earned deposits with banks unsuccessfully in many cases even for the most basic of needs like food and medicines, it should be expected that they will not be in a hurry to take their cash to the banks anytime soon. The situation was further compounded by the unstable and epileptic electronic payment system which was inadequate to bridge the gap suddenly created by the Naira scarcity.
“This experience not only reverses some of the gains we have made regarding financial inclusion, it may negatively affect credit creation in the economy especially over the short to medium term. Addressing the problem will require the CBN to consistently inject sufficient cash into the system in order to restore confidence and get the people to have faith in banking again,” he said.
Some bank customers also confirmed that they are no longer saving money in the bank.
Tony Ebere, a supermarket operator at Amuwo Odofin, Lagos, said, “When they gave the initial deadline, a lot of people rushed to deposit their money in the bank. I returned my own money as well. After that we did not see the new naira note. When the second deadline was announced, people were not interested because of what they suffered initially, imagine somebody buying N10, 000 for N14, 000, how much remains? Now nobody wants to lodge money in the bank rather we are withdrawing.
“I can only deposit money in the bank when I have it in bulk. But for not bulky money, I cannot do that. It is quite annoying that I put my money in the bank, and coming to the bank the next day, they said there is no money. So everybody has to wise-up. I have to keep and use my money and deposit it in the bank when I have it in bulk,” Tony, a trader, said.
“I want to see if the bank cares because I want to close my account. This suffering is too much,” another bank customer said.
