The Central Bank of Nigeria’s (CBN) policy decision on October 26, 2022, to redesign the N200, N500, and N1,000 denominations, as well as the following announcements, including the cash withdrawal limit, has continued to elicit controversy.
However, with President Muhammadu Buhari’s permission for a 10-day extension of the expiry date of old naira notes from January 31, 2023, to February 10, 2023, more bank customers are expected to take advantage of the window to return all their old banknotes.
The CBN Governor, Godwin Emefiele, announced the deadline extension yesterday after meeting with the President in Daura, Katsina State. He said the extension was to allow for the collection of more old notes legitimately held by Nigerians and to achieve greater success in cash swaps in our rural communities, after which all old notes outside the CBN lose their legal tender status.
Given the timing of the policies – an election year – some Nigerians, particularly politicians, believed that the move was intended to target specific individuals and have refused to see beyond their noses that the actions are in the best interests of Nigerians and the economy if the country is to address the current gale of insecurity, corruption, and economic sabotage, among other actions of some privileged elites who continued to take advantage of a dystopian situation.
If anything, the CBN intervention has had early achievements, as the central bank’s monetary policy committee (MPC) recently confirmed that the bank’s numerous policy interventions had resulted in a fall in inflation after months of an increase in the headline index.
In addition, the cashless policy has reduced banditry and kidnappings, which were previously common. Mr. Godwin Emefiele, Governor of the Central Bank of Nigeria, stated that the decision to redesign the naira was made in response to President Muhammadu Buhari’s permission.
He specifically stated that the move to redesign the currency was intended to counteract the increasing ease and risk of currency counterfeiting, as evidenced by several security reports, as well as the increased risk to financial stability and the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
Emefiele went on to say that there was widespread hoarding of naira notes by members of the public, with statistics suggesting that more than 80% of the currency in circulation was outside the vaults of commercial banks.
According to him, 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 because it has the potential to harm monetary policy actions, leading to higher inflation and currency speculation, exposing vulnerable Nigerians to further economic hardship.
He stated that all banks were expected to keep their currency processing centers open from Monday to Saturday to accommodate all cash returned by their customers.
The CBN governor also stated that bank charges for cash deposits have been abolished with immediate effect to transition from old to new notes. He went on to say that no bank customer should be charged for cash returned or placed into their accounts.
The CBN chairman emphasized that, in the interim, the current notes remained legal money and should not be rejected as a method of payment for goods and services. He assured the public that the CBN will continue to monitor both the banking system and the economy as a whole.
Sincere Policies
Emefiele claimed that the CBN acted in good faith to advance both the goals of the bank and the welfare of the nation.
Emefiele emphasized that currency management remained a crucial duty of the CBN, as stated in Section 2 (b) of the CBN Act 2007, saying there had been concerns about the management of the old series of banknotes as well as currency in circulation, especially those outside the country’s banking system.
He stated that some characteristics of a great central bank included the reliability of local legal cases, the effectiveness of its supply, and its ability to effectively implement monetary policy.
However, the CBN governor pointed out that in recent years, currency management had to deal with several enormous problems that kept getting bigger and more complex, having unforeseen effects on the CBNs and the nation’s credibility.
He emphasized that in recent years, the CBN has reported much greater incidences of counterfeiting, notably in the denominations of N500 and N1,000 banknotes, adding that recent breakthroughs in photography technology and printing machines had also made counterfeiting relatively easy.
“Based on these trends, issues, and facts, and by Sections 19, Subsections a and b of the CBN Act 2007, the Management of the CBN sought and obtained President Muhammadu Buhari’s approval to redesign, produce, and circulate new series of banknotes at N200, N500, and N1,000 levels,” he claimed.
“To regulate the money supply, we must first sweep up the N3.2 trillion and return it to the CBN. Once more, this would assist control of inflation and have a favorable effect on it.
Applauded: The Cashless Policy and Currency Redesign
Despite opposition to the CBN’s cashless policy direction, commentators have backed the initiative, stating that if the nation is to advance, the choice to restrict cash withdrawal limits to private persons and business organizations following the currency redesign program was the right one.
Under the new regime, the central bank has set a limit on cash withdrawals, limiting the weekly maximum over-the-counter (OTC) cash withdrawals for both individuals and corporate organizations to N500,000 and N5 million, respectively.
It was generally accepted that the top bank’s action was intended to discourage vote buying as the general election of 2023 draws near, as well as to address currency hoarding to curb inflationary pressures and handle serious security challenges.
Analysts, however, asserted in separate interviews with THISDAY that the new CBN strategy will help to advance the goals of the monetary policy more quickly.
The monetary and fiscal space will be improved, they claimed, and the banking industry’s profitability will increase as a result of the policy.
The delayed uptake of e-banking, the spike in cybercrime during an election year, and other macroeconomic factors, the researchers said, could limit the policy’s positive effects. Additionally, they thought that the program may make the Naira stronger against the US Dollar.
According to Mr. Ibrahim Shelleng, a wealth management and business development consultant, the ability to absorb surplus liquidity and having the majority of the public participate in the financial system are essential for monetary policy to be effective.
He declared, “The CBN has attempted to promote both financial inclusion and a cashless society through several measures, but these have generally been unproductive. The new CBN policy would undoubtedly help in expediting the goals of the monetary policy while also addressing the concerns of insecurity and promoting financial inclusion.
“Even though there will surely be implementation difficulties, it is a positive start toward cleaning up the economy. The economy’s excess liquidity needs to be removed because doing so will also help with inflation.
Additionally, Dr. Chijioke Ekechukwu, managing director and chief executive of Dignity Finance and Investment Limited, stated that the CBN’s decision to prohibit cash withdrawals will not only prevent vote buying and terrorism, but also promote digital payments, and ease the burden on foreign currencies.
To put it another way, the policy will raise the Naira’s value in comparison to other currencies. It always comes down to balancing supply and demand. Foreign currencies will become more plentiful on the market if there is a shortage of Naira, which can then be exchanged.
It would also assist the Central Bank of Nigeria (CBN) in managing the currency’s supply, which may not be sufficient to meet demand in all the federation’s states at once.
Additionally, Mr. Tope Fasua, a famous economist, claimed that the program might close the present exchange rate discrepancies.
“The policy will also be an excellent move in bolstering the value of the naira,” he declared. At this pace, if this strategy is successful and is maintained, we can witness a situation in which the naira/dollar exchange rate falls and the naira gains some strength against the dollar when there is less money pouring after the dollar.
The cash withdrawal cap is a component of the currency reform package, according to Prof. Uche Uwaleke, professor of finance and capital markets at Nasarawa State University in Keffi, who also noted that the two are interdependent.
“Cash withdrawal limits are a crucial component of the currency reform intended to lessen the amount of money circulating outside the banking system,” he said.
“Imposing cash withdrawal limits by monetary authorities after a demonetization campaign is a norm if the experience of India’s demonetization effort is anything to go by.
Uwaleke stated, “The main goal of currency redesign is defeated if depositors of old currency notes can exchange them for new naira notes that get withdrawn from the banks. “Having said that, I anticipate it would encourage financial inclusion as Nigerians are forced to use alternative payment channels.
The CBN should now make sure that bank fees for money transfers and other associated fees are kept to a minimum.
The CBN’s cash withdrawal limits, according to Mr. Idakolo Gbolade, managing director and chief executive of SD&D Capital Management Limited, are a step in the right direction. He also noted that the measure will substantially reduce the amount of cash in the economy to the acceptable minimum allowed by CBN regulations.
“The move would also increase the value of the Naira when there are fewer N500 and N1000 notes in circulation,” he said, comparing it to how major foreign currencies like the US Dollar, British Pound Sterling, and the Euro do it.
The CBN’s cashless strategy will benefit greatly from the adoption of this policy, which will significantly expand the usage of alternative forms of payment such as online banking, USSD, ATMs, and POS.
“We recognize that our economy has been a cash economy for a long time, so these measures will initially cause economic disruptions, but things will settle in the long term, and the economy will be better for it,” he said.
“The strategy will prohibit cash hoarders and politicians carrying cash for vote buying, and with these new regulations, terrorists and kidnappers will not be receiving significant sums as ransom.”
Policies will end corruption and lessen poverty.
Beyond the obvious advantages of the CBN’s cashless policy and currency redesign, which include preventing terrorism and controlling the money supply, among others, the initiative will undoubtedly also ensure that future social intervention programs aimed at helping poor Nigerians achieve their goals.
Going cashless would make sure that such monies could be easily traced and managed, which would further provide for greater openness and responsibility by those in charge of managing the resources.
Additionally, as Emefiele recently confirmed, despite the security services’ recent success in combating insecurity nationwide, the central bank’s cashless policy initiative has contributed to a decrease in the frequency of kidnapping and banditry as a result of the restrictions on cash withdrawals.
A policy that serves the interests of the majority
Despite repeated assurances that the policy was designed with Nigerians, particularly the average citizen, and the nation as a whole in mind, some individuals and groups, particularly elites who seemed to gain from the previous way of doing things, have continued to disagree with the CBN and have turned to defame the bank to sour relations between the top bank and the populace.
In conclusion, these unpatriotic Nigerians have given the mistaken impression that the CBN’s recent policy directives were against Nigeria’s interests and would worsen their situation.
The CBN governor had, however, always emphasized that the central bank he oversaw would always place a priority on the needs of its customers. This was especially clear in the support the bank provided to homes and small businesses during the COVID-19 pandemic.
