THE Central Bank of Nigeria’s (CBN) redesigning of select currency notes of N200, N500 and N1,000 would come at a huge deficit cost to the economy, according to sector experts.

The government is struggling with a huge debt deficit and would likely borrow massively to fund the currency redesigning, which, the experts argued, would deepen inflationary pressure on Nigeria’s currency.

The CBN had on Wednesday, October 26, disclosed its plan to redesign the naira, citing concerns of “illicit” funds in circulation, which it said bandits and kidnappers had been exploiting in perpetrating their crimes.

The apex bank will be introducing the redesigned notes into the financial system on December 15, 2022, and has given January 31, 2023, as the expiry date for legal tender of the notes being rested.

The bank’s governor, Godwin Emefiele, told journalists in Abuja at a briefing that the redesign move was informed by, among other reasons, concerns over the significant hoarding of banknotes by some members of the public.

According to Emefiele, statistics had shown that over 80 per cent of the currency in circulation were outside commercial banks’ vaults, which was fuelling illicit financial flow within the economy.

He further noted that the worsening shortage of clean and fit banknotes, with its attendant negative perception of the CBN, had increased the risk to financial stability.

He stressed that the increasing ease of counterfeiting had been evidenced by several security reports at his privy.

What the decision means to Nigerians

The redesigning decision is not unexpected to trigger economic dislocation – especially considering the short time frame – and trigger a rush by the people to banks to dispose of old notes, as well as withdrawal, runs at automated teller machines immediately after the new notes come into circulation.

It is feared that rural dwellers who live far from where banking services are available would experience hardship dumping the old notes, as well as, initially, obtaining the new ones.

Some financial analysts are expecting the coming experience to bring more traditionally unbanked people into the banking system.

“There will be lots of long queues in the banking hall. It’s going to create lots of inconveniences for the people. The unbanked and the elderly may not be able to cope since we don’t have banks in most local government areas,” the Executive Director, Centre for the Promotion of Private Enterprise (CPPE) and former Director-General of the Lagos State Chamber of Commerce, Muda Yusuf, told The ICIR.

Impact on the economy

Yusuf did not see the redesign proposal as positively impacting the monetary policy.

“It’s a big distraction. It’s going to impose lots of costs on the economy. It’s not going to be cheap. We are talking about printing N3.3 trillion currency notes.

“Did you ever think of the logistics of such printing when we are borrowing to fund our budget deficits? How are you going to navigate the 774 local governments when some of them don’t have banking halls?” he wondered.

The ex-LCCI chief argued that the CBN dream of checkmating electioneering spending by redesigning the naira notes could only be achieved if the new notes were limited in supply, a task he considered would be quite tall for the apex bank.

Yusuf urged the CBN to focus more on the recent downgrading of Nigeria by Moody to B3 ratings, from B2, which he said was not healthy for the economy.

“We have issues of high inflation at above 20 per cent, the recent downgrading of the Nigerian economy by Moody, and the burning issue of the foreign exchange market,” he said.

He did not believe that redesigning the naira notes would address the practice, by some Nigerians, of hoarding the currency. “Go to event centres in Lagos and other major cities; the new notes you don’t find in the banks, you will find people selling. Are those currency traders not getting them from the banks?” he asked.

What economists are saying

An economist and development expert, Gbolahan Olojede, described the policy initiative as “good”, but said the government needed to clearly explain its plans for the large pool of the informal sector on the issue.

Olojede stressed the importance of pushing the policy the right way for more money to come into the economy.

“Do we have the political will to take back the illicit money, or would the bank managers do the smart jobs for the guys that have stashed money away?” he queried.

A sub-Saharan banking analyst and economist, Joshua Adebisi, said the policy would, as regards liquidity management, check counterfeiting,  and moderate lots of currency in circulation.

Adebisi said, “The only way this could check electioneering is if the new notes are limited in supply. It would also bring many people into banking services and regulate financial flow across the country.”

A research conducted by SBM Intelligence Nigeria, a notable research outfit, noted that it is typical for monetary authorities to redesign currency notes to make them difficult to counterfeit.

It noted that the CBN, however, appeared more focused on reducing the number of naira notes in circulation to control inflation.

According to the research, more and more transactions are being consummated through transfers, especially at the business-to-business level. It noted, however, that at the business-to-consumer level, the economy is still largely cash-based.

The SBM report stated, “CBN sees the policy move as a means of bringing currency from outside the banking system into the banking system, thereby making monetary policy more effective in combating inflation.”

The report regarded the apex bank’s chosen method of approach as still curious for one major reason.

“Overall money supply in Nigeria’s economy stands at ₦45 trillion, of which only seven per cent (₦3.2 trillion) is in cash. In other words, Nigerians are increasingly shunning cash for electronic settlements – the value of instant payment electronic transactions was ₦32.84 trillion in September 2022 alone, according to the Nigerian Interbank Settlement System (NIBSS). Year-to-date, the value of electronic transmissions stands at ₦271.5 trillion. The value of point-of-sale (POS) transactions for the first nine months of 2022 (₦6.05 trillion) has almost outpaced the total value for all of 2021 (₦6.4 trillion),” it stated.

Harrison EDEH

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Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.