By Nnamdi Elekwachi
There is nothing wrong with the CBN redesigning banknotes in Nigeria. Elsewhere, this exercise is a necessary monetary policy intervention which happens periodically. Normally, the CBN, which issues all Nigerian banknotes, has the statutory powers to recall or withdraw them from circulation to, among other things, control inflation, reduce counterfeiting and control liquidity – money in circulation – as being adduced.
But the problem is the cost implication of doing this at a time when the naira faces the worst form of currency crisis (weak purchasing power parity, PPP, vis a vis the dollar and other hard currencies).
Recall that about a decade or so ago, the CBN lamented the cost of printing the naira, especially the lowest four denominations in the CBN’s banknote series (₦5, ₦10, ₦20 and ₦50) in polymer, an exercise authorities of the apex bank said was expensive, more so than the cost of printing paper notes. It is worrisome since the exercise only gives the naira face value and does not give the naira or the nation any advantage in terms of purchasing power parity (PPP).
Also concerning are the issues of timing (when the policy was introduced) and the allowed time-frame (the few days period, whether 100 or 46, within which people are expected to return the current banknotes to deposit money banks, DMBs). The issues of timing and time-frame will likely affect the rural areas most since these places do not have banks in the same way urban centres have them. How will rural farmers and traders meet up before the end of the 100- or 46-day deadline? What about communities in riverine areas that may need to cross water just to access banks? What about the unbanked population with no BVN yet, and who in getting bank verification number (BVN) must first secure the NIM card with all the rigour involved? There is growing concern too that informal sector businesses may go under in any panic.
It should be a shame that our naira, as a legal tender, doesn’t have a lifespan. In America, Britain and Europe (Eurozone), for example, currencies have due date of withdrawal from circulation. Since one of the qualities of money is “durability,” some notes, however, are made to withstand mutilation and daily wear and tear. This is why the $100 bill lasts longer in circulation than lesser bills like the $1, $5, $10, etc. Also, the €500 note has a long-lasting span than other euro notes in lower denominations. But the naira, regardless of the denomination, stays in circulation until fitness and acceptability are lost.
There is need now for a legislative instrument that makes redesigning of our banknotes a periodic exercise.
Since the CBN has the power to replace unfit banknotes through the Nigerian Security Printing and Minting Company, I personally think that it is the ₦100 note, of all our banknotes, that needs to be reminted. This is my personal opinion and it stems from my conviction that the hundred naira note, as we have it now, is the scarcest in circulation leading to increase pressure on and demand for it.
Too, the hundred naira note is the note the average citizen is likely to spend more daily on: transportation, recharge card, snacks and mending or polishing shoes. So, it would have made a lot of sense had the apex bank said the pressure on that banknote was much and that for this it needed more printing after it became scarce following 2014 redesign to mark centenary celebrations (mind you we still have two versions of the same ₦100 banknote in circulation). But the CBN said it was redesigning higher denominations to curb counterfeiting and hoarding. These banknotes (₦200, ₦500 and ₦1000 notes), truth be told, have never been redesigned over or nearly twenty years, and some of those printed during first issue may still be in circulation today.
Good as this redesigning policy sounds with the possibility of retiring all current counterfeits in circulation, question is, how long will it even take before the counterfeits of the new banknotes are circulated?
As for hoarding, I shall return to it later in this piece.
The CBN timing was wrong and it didn’t help matters that the finance ministry, which oversees fiscal policy, was not consulted by the apex bank before the announcement was made in a press briefing by the CBN governor, Godwin Emefiele, who had managed to secure the approval of the President (who was away in Korea?). Though it falls within the powers of the CBN, redesigning banknotes in a country like ours requires wider consultation followed by adequate publicity and public awareness. This was not done and the result would be a likely wave of panic that may hit financial services sector when the deadline draws closer.
In fact, to paint a scenario here, banks may likely get congested, unable to perform other daily operations aside from cash deposit and receipt. The next option may likely be POS points, which when besieged for deposits may likely increase charges. Bureaux de change (BDCs) too will not spare poor citizens, not to talk of clearing houses. In a situation like this, the current banknotes may even suffer rejection before the deadline due to panic associated with how to spend or where to deposit it. This may result in an irretrievable (currency) loss to be borne for the federation by the CBN!
Timing and timeframe are important in policy planning and execution. In March of this year, Britain announced a transition from note to polymer in certain denominations of the British Pound. The time-frame allowed was a six-month period for currencies to be returned to banks to allow the Royal Mint come up with new banknotes. Even recently the Queen died, meaning that her head will cease to appear on certain national symbols including national currencies. I am not aware if there is timeline for that yet; in fact people were only told the withdrawal process will be gradual. Why is Nigeria’s case different with 100 days to deposit money to banks and 46 days to get new banknotes?
There is a thing about redesigning banknotes which makes it costlier than reminting them. The latter is a monetary routine CBN does often, perhaps daily, to mop up unfit banknotes in circulation while the former involves an outright rebranding of banknotes periodically, like say, after 5 to 8 years, as is global standard. Again, redesigning banknotes comes with creating a design (model) which will involve: colourings, engravings, and then printing. Reminting is just using the existing model to produce a currency – more like reissuing fresh notes. So, I ask, will this not likely take a toll on public finance?
Having followed Emefiele’s monetary policy regime, I can understand the CBN boss wants to transition Nigeria to a cashless economy. There is already the talk of e-Naira, a digital currency which the president launched only last year – 2021. But the cashless policy itself should be allowed to gradually take root given a high population of unbanked Nigerians and the millions without internet access yet, not to talk of population of semi-literate Nigerians to whom this may pose a challenge.
Reducing liquidity which increases the size of money within the vaults of the CBN and money deposit banks is not bad given that over ₦2.73 of the ₦3.23 trillion released by CBN are outside bank vaults. With over 80% of the currency in circulation hoarded or in private hands, bank reserves may face threat. So a mop up is opportune as far as timing and time allowed is right.
As for hoarding, the thinking that the exercise will play into the hands politicians, especially those who may have stashed billions of naira in their houses waiting to induce voters in the coming 2023 elections, may not yield much-needed result. While there is a tendency of reducing vote buying with the policy, not all politicians are going to be affected, especially incumbent governors, sitting and serving state and federal legislators and cabinet members, who will get “preferential treatment” when the new notes begin to circulate later by December 15 of this year. Again, most politicians own banks, are friends of banks CEOs or even have major shares in banks. So who says they can’t access these monies when they come into circulation before they get to the ordinary man?
Hoarding too is not synonymous with the political class alone. Some owners of private businesses too hoard money in their boxes, safes and coffers, all in the name of safekeeping. This too constitutes hoarding, and is not different from a college boy or housewife saving up in a piggy bank.
Not even the electoral umpire, INEC, is served any better by this policy. The Commission itself needs no other currency to execute elections here other than the naira, since, going by the extant laws, INEC does not get outside funding from any source other than its budget nor are parties and candidates allowed to receive receive monies (in foreign currencies) from outside the nation. If the banknotes are injected into the system at a time when elections are around the corner, and when there will likely be a rush to withdraw them, how helpful is that to INEC, especially when it comes to mobilising and running other odds and ends?
Household finances are shrinking as prices of foodstuffs keep soaring, the meaning is that on a macroeconomic scale, households and their businesses need to access liquidity to stay afloat and then survive, and not get plunged into poverty due to likely panic. These, frankly speaking, are difficult times, and while the apex bank indeed possess the powers to redenominate, redesign, re/print or decide what monetary policy option is the best, the times are hard and do not augur well for such exercise. This assertion becomes even more so given that 83 million Nigerians are living below the poverty line as more millions have fallen on hard times in the last seven years. With this being the reality, it is safe to say the intervention is nice but not coming at the best of times.
Nnamdi Elekwachi, a historian, can be reached via nnamdiaficionado@gmail.com
