The Central Bank of Nigeria (CBN) has said it will redesign parts of Nigeria's currency notes, the Naira in order to gain control over circulation and integrity.
The Governor, Godwin Emefiele said at a press conference in Abuja on Wednesday that the procedure will affect the higher denominations: 200, 500, and 1000 notes.
Emefiele explained the rationale for the decision, saying that the majority of the country's currency notes were outside bank vaults and that the CBN would not allow this to continue.
According to him, the new notes will be released for public use on December 15, 2022.
He also stated that the old and new notes would circulate concurrently until January 31, 2023, when the old notes would no longer be legal tender.
According to a Vanguard report, Prof. Magnus Kpakol, the former Economic Adviser and Chief Executive Officer of National Planning under President Olusegun Obasanjo stated that the exercise would be costly, but that the apex bank must have weighed the cost of the economic revolution.
"It will undoubtedly come at a cost," he said.
"Obviously, the bank must have evaluated this and determined that the expense of the exercise is less than the economic cost of the current situation.
“Re-designing the currency is not bad and certainly the CBN must have reasons for the decision which could be monetary and even from the executive side.
“It could be targeting those who have stashed a lot of cash and may want to use it to put pressure on the currency at the foreign exchange market or who may want to compromise the forthcoming elections."
Prof. Uche Uwaleke, the President of the Association of Capital Market Academics of Nigeria (ACMAN) agrees that CBN is on the right track.
“I think the decision to replace some naira denominations with new ones will be positive for the economy in the medium to long term.
”First, although the measure does not amount to demonetization of big currency notes often carried out by Central banks to curb black money and corruption, it will go a long way in ensuring that a lot of naira notes circulating outside the banks are crowded in.
”If it leads to large deposits in banks, it means the banks will have more money to lend which may reduce interest rates.
"I also think it may have the effect of reducing speculative attacks on the naira in the parallel market.
"I expect that the Financial Intelligence Unit will be on the watch out for huge deposits as a way of monitoring illegitimate transactions.”
On the Contrary, analyst and Vice Executive Chairman, HighCap Securities Limited, said: “Merely redesigning a currency is not likely to change its value.
"The inflation ravaging the Naira now which is diminishing its value is a result of scarcity of forex, goods, and over the creation of the currency by CBN.”
He, however, agrees that the cost of redesigning and printing the new notes will be another dent in CBN’s balance sheet which will also deplete the country’s forex reserve.
The exercise may just be a costly motion without movement and a futile rescue mission.”
Chief Executive Officer, of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf describes the planned move by the apex bank as embarking on a profligate exercise and a distraction.
“It is difficult to see any compelling value proposition of this currency redesign idea.
"The cost of such an action would be outrageous and disproportionate compared to the expected benefits advanced by CBN.
“At a time when the government is grappling with the high fiscal deficit, debt crisis, severe revenue crisis, and underfunding of many government projects and programs, it is most inappropriate to embark on such a profligate exercise.
“This is one intervention we can do without. There are more urgent issues demanding the attention of CBN.
"We have issues with liquidity in the foreign exchange market, the depreciating currency the recent Moody’s downgrade of Nigeria, soaring inflation, and many more.
“The CBN should save the citizens and the economy the trauma of this currency redesign. It is a distraction we can do without.”
Adebisi Ikuomola, Executive Director, Technical, Anchor Insurance Limited stated that he does not see the development having any practical influence on the economy or boosting the naira.
“The CBN said that the move is geared towards reducing the volume of naira in circulation, however, I don’t see how that can positively affect the economy or strengthen the naira.
"The naira is weak in the foreign exchange market and this policy may not turn that around.
“However, this development could cause panic among Nigerians as many of them will be scampering to the banks to change their old notes.
"Consequently, the banking halls that have seen some level of calm in terms of customer congestion could see a beehive of crowds in the coming days.”
Redesigning the Naira notes may not be Nigeria's top priority right now, but the CBN Governor provided several valid arguments.
Emefiele declared that currency management has faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of the CBN and the country.
The challenges he said are primarily:
Emefiele reiterated currency management as the key function of the CBN stated in section 2 (b) of the CBN Act 2007.
He explained that the CBN has recorded significantly higher rates of counterfeiting especially at the higher denominations of N500 and N1,000 banknotes in recent years.
This he attributed to recent development in photographic technology and advancements in printing devices which have made counterfeiting relatively easier.
That over 80% of the country's banknotes are being hoarded by members of the public is another reasonable call to action for a great Central Bank.
And it is not a bad idea that the Central bank wants to fix the worsening shortage of clean and fit banknotes.
According to the global best practice, to maintain a healthy currency regime, central banks are required to redesign, produce, and circulate new local legal tender every five to eight years.
The Central Bank is not out of order since the naira has not been redesigned in the last 20 years.
Although, many Nigerians on receiving the directives tagged the Naira redesign misplaced priority amidst other major crises the country is battling.
The CBN is merely doing parts of its mandated functions.
The Naira redesign might not have any significant impact on the value of the country's currency but it will curb the highlighted challenges the CBN said it is facing.
Beyond the reasons given are the far-reaching consequences of the abrupt action that caught the business world and the entire country off guard.
This development will have a negative impact on campaign finance, money laundering, terror financing, and the payment of large quantities of money as ransom to kidnappers.
For the first time, those who have stowed large sums of money ahead of the 2023 elections for vote-buying and campaign prosecution would be required to bring those funds out, and many of them would be obliged to explain how they obtained the funds to security officials.
The Economic and Financial Crimes Commission (EFCC) has indicated its intention to take action against currency hoarders who may be required to deposit large sums of cash in banks.
In a statement issued on Wednesday, the Executive Chairman of the EFCC, Abdulrasheed Bawa praised the CBN's move, calling it "a well-considered and timely response" to the dilemma of currency management, which has badly impacted the country's monetary policy and security imperatives.
Bawa, although appreciating the development, feels the decision will restore rationality to the country's currency management issue.
“It is heart-warming that the CBN has demonstrated courage in taking this bold decision, which I believe will bring sanity to the currency management situation in Nigeria.
“The EFCC, the CBN, and some other regulators in the financial sector have worked closely in the recent past to determine how best to stabilize the country’s monetary policy environment."
The Executive Chairman noted that the CBN's goals in redesigning and reissuing bigger denomination Naira note aligned with the goals of the Money Laundering Prevention Prohibition Act 2022, which criminalizes the conduct of cash transactions beyond a particular level.
According to Section 2 (1) of the Money Laundering Act 2022, “No person or body corporate shall, except in a transaction through a financial institution, make or accept cash payment of a sum exceeding— (a) N5, 000,000 or its equivalent, in the case of an individual; or (b) N10, 000,000 or its equivalent, in the case of a body corporate.”
While all of these are great outcomes for the country, it is important to note that the makeover will be costly.
Linkage Assurance Plc was incorporated 26th March 1991 and was licensed to cover...LEARN MORE
Access Bank plc, is a Nigerian multinational commercial bank, owned by Access Ba...LEARN MORE