Discordant tunes over CBN’s naira redesign

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  • Six-week time frame involves significant risk – Analysts
  • Political, anti-corruption considerations outweigh economic benefits –Critics
  • Huge benefits await economy if properly implemented – Proponents

BY BAMIDELE FAMOOFO AND TIMOTHY AGBOR

Uba Group

Rather than garner applause, economic analysts and Nigerians at large have been sharply divided over the appropriateness of the Central Bank of Nigeria’s naira redesign policy.

Apart from severe criticism of the apex bank for waiting till the twilight of the administration of President Muhammadu Buhari before carrying out a major financial policy of currency redesign, the near secrecy with which it was pursued and the time frame for its implementation have all earned it caustic reviews by many experts.

The Point also learnt that security, political and anti-corruption considerations were top of the agenda while the economic benefits tagged far behind them even though many people tend to focus more on the economic considerations.

For an exercise considered long overdue, many economists had thought that it would rank among the first on the ‘to-do list’ of the Buhari administration since its inception almost eight years ago. The sudden and impromptu nature of the exercise, and its alleged top-secret approach were the major indicators that the policy might not be solely to reposition the economy, some of those who were interviewed said.

In particular, the short time frame for the exercise has been criticized as capable of doing significant damage to the economy rather than what it was intended to achieve.

The Founder and Chairman of RTC Advisory Services Limited, Opeyemi Agbaje, though agreed that withdrawing current bank notes might provide the CBN an opportunity (subject to additional policy prescriptions) to formulate and implement regulations and strategies for deepening its cashless economy initiatives, argued that nothing about cashless economy and eNaira, justified the emergency policy posture at a time of political transition and high macroeconomic instability.

“It is difficult to situate the perceived urgency of this policy implementation with merely the objectives of the cashless policy and eNaira scheme,” he said.

“We are not convinced that the case for currency redesign at this time has been borne out by our analysis. We believe the policy adds to perceptions of macroeconomic uncertainty at a period of macro instability and elevated political risk”

Also on the possibility of the policy curbing inflation, Agbaje noted, “This rationale is important and worthy of careful consideration. Inflation has reached over 21 per cent as at October 2022. Where there is too much money in circulation, it could conceivably fuel inflation; and reducing cash in circulation could moderate inflation. However, money in bank vaults remains available for consumption and therefore may still contribute to inflation.

“It has also been noted that the currency redesign policy could actually contribute towards inflation where persons holding large cash deploy the same towards buying items that hold value over time (e.g. FX, expensive cars, real estate, jewelry etc) as an alternate store of value, which may be re-converted to cash at a later date after the exercise is concluded.”

Overall, he concluded, “We are not convinced that the case for currency redesign at this time has been borne out by our analysis. We believe the policy adds to perceptions of macroeconomic uncertainty at a period of macro instability and elevated political risk. Many of the possible benefits are debatable and the policy appears to have greater resonance as a political, security and anti-corruption policy rather than a cogent economic prescription.

“The timing just before general elections and the 6-week time frame to complete the currency exchange involves significant risk. It is difficult to see how currency redesign gained priority as an emergency economic or monetary policy.”

The Point gathered reliably that the determination to ensure that the forthcoming general election, which begins on February 25 with presidential and national elections were not overtly monetized would be largely dependent on firm control of the cash in circulation.

President Buhari had, time and again, insisted that his administration would conduct a credible and transparent election next year before he leaves office.

A reliable source close to the Presidency said the need to ensure that the “virus of vote-buying is starved of the needed oxygen which is raw cash” would go a long way in sanitizing the process.

The source, who would rather not speak on the record, said, “I can tell you that dealing with the virus of vote-buying is a major objective of this policy. Is it not when you have abundant cash that you will deploy it to buy votes? With the dead line to send in all old notes set at January 31, which is just about six weeks, and the following month is election, it will pose a lot of logistic challenges for politicians who are working on the possibility of vote-buying.

“While people are focused on the economic reasons, I can tell you that political, security and anti-corruption considerations actually top the chart on the decision and the execution of the policy.”

He argued that part of the extraneous considerations rather than pure economic needs was the desire to “deal a significant and deadly blow on terrorism, kidnapping and general insecurity in the country that had earned the administration so much bad name and image.

“CBN"

“It is a means by which the administration can suffocate these gangs by cutting off their source of revenue. And knowing that these bandits are well funded and endowed in terms of revenue as they keep large sums outside the banking system to evade tracking, something drastic had to be done. And there is no denying the fact that they are feeling the heat now.

“With about six months to go, insecurity will be drastically reduced. Banditry, kidnapping and other terrorist activities are fueled and driven by the availability of funds. Once that financial oxygen is short-circuited, kinetic operations will become much easier by far. Money is a huge motivation for them,” the source explained.

Also, Bismarck Rewane’s Financial Derivatives Company has argued that the naira redesign policy will not reduce inflation, contrary to the claims of the CBN. He argued that the redesign would only accentuate inflation because cash is only six per cent of money supply.

According to him, money supply growth average over the last five years is 12.5 per cent.

FDC argued further that the policy would lead to a bi-monetary system results from a doubt/loss of confidence in the country’s currency.

“Market participants shift to dollar to defend themselves from high and persistent inflation,” the analysts said.

‘BENEFITS HUGE IF WELL IMPLEMENTED’

Some other financial and economic experts, however, noted that the advantages of the redesigned naira notes to the average Nigerians, businesses and investments were huge and called on the Federal Government and the CBN to ensure that people don’t hoard money.

They said if the money in circulation was controlled and terrorists in vulnerable regions of the country were nabbed, investors would be encouraged to set up businesses in Nigeria, thus improving the economy of the nation.

In an interview with The Point, a financial expert, Samuel Atiku, called on the Federal Government to clamp down on criminal elements that were returning the old currencies and ensure that “they are decimated to enable investments and businesses thrive.”

He noted that the redesigned notes would have general benefits on the economy because some strong policies would be implemented by the Federal Government and CBN to prevent the naira notes being hoarded or laundered.

According to him, young Nigerians who appeared to have lost interest in excelling in their small-scale enterprises, would be encouraged with good financial policies and actions that would curtail activities of criminals and corrupt persons.

Speaking on the benefits of the naira redesign exercise, Atiku said, “I would say that one key advantage of the redesigned naira notes is that it will take out the entire Nigerian currency, that is the notes that we have currently in circulation and then get in new ones. This will bring about better-managed naira circulation. Recall that most of the naira notes that we currently have in circulation are not fit for the purpose, most of them are not looking good and for some years now, banks have been complaining about that. So, taking out these notes will usher in new ones.

“The second gain will be in terms of monetary policies. When you have control over your money, it will improve the economy. Money is created in two ways – there is private sector money and there is one created by government through the Central Bank. For clarity, if you have just a bank in Nigeria for instance, and I go to the bank and deposit N100 cash in that bank, that money enters into the computer as N100. That N100 that I go about with is a bank-created money but the real cash that I have deposited with the bank is the main money which is what is called paid money. So, when the monetary authority has control over paid money, we call it better-managed inflation, one way or the other.

“As to the overall benefits on the economy, understanding the fact that most of the rural communities in Nigeria around River Niger and Benue have been submerged in flooding, most of them have lost their livelihoods, they are displaced, and most of them don’t have access to banks.

“That said, some criminals and especially, bandits who have hoarded money don’t have a choice than to bring this money into the bank and it will be an opportunity for the Federal Government to really clamp down on bandits. If they really know what they are doing, especially the Nigerian Financial Intelligence Unit, they should clamp down on these terrorists because they are part of the people destroying the economy of Nigeria and making it difficult for people to invest in Nigeria and young entrepreneurs and farmers to thrive.”

“Some criminals, especially bandits, who have hoarded money don’t have a choice than to bring this money into the bank and it will be an opportunity for the Federal Government to really clamp down on bandits”

Also speaking, an economic expert, Hidan Cletus, said the exercise would ensure that a lot of money would be returned into the system and that the regulation of the new notes would bring about reduction of inflation.

He urged all stakeholders, including the Economic and Financial Crimes Commission, the Independent Corrupt Practices and Other Related Offences Commission, the Nigerian Financial Intelligence Unit and the Nigeria Police Force, among other security agencies, to ensure that old naira notes were returned and that those who might have flouted the financial laws are nabbed.

Cletus said most Nigerian youths would want to go into investments and businesses if they discovered collaborative readiness by the Federal Government and other relevant agencies to address financial and insecurity challenges confronting the country.

“I would say that the benefits are huge and that will be realised if the Federal Government and other relevant agencies like EFCC, ICPC, NFIU and security agencies collaborate to ensure that stashing of cash is checkmated. I want to say that doing this will reduce inflation. I am also sure that most Nigerians, especially youths, who have hitherto given up on the country, would return and invest. Our investors will also have a renewed desire to come into the country and invest,” he said.

ECONOMIC BENEFITS

The immediate benefits which both the Monetary and Fiscal regimes hope to deliver to Nigerians with the Naira redesign exercise include “to quicken the attainment of cashless economy as it is complemented by increased minting of our eNaira; curtailing currency outside the banking system and, as monetary policy becomes more efficacious, help to rein in inflation.”

Also speaking, an economic expert, Hidan Cletus, said the exercise would ensure that a lot of money would be returned to the system and that the regulation of the new notes would bring about a reduction of inflation. He urged all stakeholders including Economic and Financial Crime Commission, the Independent Corrupt Practices and Other Related Offences Commission, the Nigerian Financial Intelligence Unit and the Nigeria Police Force among other security agencies to ensure that old naira notes are returned and that those who might have flouted the financial laws should be nabbed and prosecuted.
Cletus said most Nigerian youths would want to go into investments and businesses if they discover collaborative readiness by the Federal Government and other relevant agencies to address financial and insecurity challenges confronting the country.

“I will say that the benefits are huge and that will be realised if the Federal Government and other relevant agencies like EFCC, ICPC, NFIU and security agencies collaborate to ensure that starching of cash is checkmated. I want to say that doing this will reduce inflation. I am also sure that most Nigerians, especially youths, who have hitherto given up on the country, would return and invest. Our investors will also have a renewed desire to come into the country and invest,” he said.