Naira Redesign: Is the decision to change it a masterstroke or a wrong initiative?

By Matthew Ma

“If this policy will take us to the promised land as they claim, then it is worth the patience and endurance.”

On November 16, a rowdy session of the Senate began over the Central Bank of Nigeria (CBN) policy to redesign higher denomination naira banknotes. During the debate, some senators called for the extension of the deadline to April 30, 2023, saying the deadline was too short. Other senators disagreed with Kalu and asked their colleagues to overlook the CBN policy and let the country deal with the consequences of the policy. They also called on CBN to take proactive steps, particularly in rural areas, to support all Nigerians to obey the initiative. According to them, such mass awareness would help Nigerians in rural areas to comply with the policy and not lose their hard-earned income. Recall that on October 26, the Central Bank of Nigeria (CBN) announced its decision to redesign the N200, N500, and N1000 notes. Commenting on the developments, CBN Governor Godwin Emefiele said that introducing new designs of banknotes was imperative following the unusual circumstances in Nigeria’s financial, monetary, and security systems. The circulation of the new currency will begin on December 15, 2022, while the existing notes cease to be legal tender by January 31, 2023. The CBN governor pointed out that the change was a follow-up to the approval of President Muhammadu Buhari. Mr. Emefiele told journalists during a news conference in Abuja that the action is part of the efforts to halt the slide of the official tender of the country, which has lost more than 35 percent of its value in the past year. The governor said the measure is to tackle the issue of counterfeit notes and recall large amounts of money outside the banks. It will also stifle access to money used as ransom by terrorists and kidnappers. These kidnap-for-ransom gangs often demand huge sums, usually delivered in cash. Emefiele pointed out that the currency in circulation had more than doubled since 2015, a worrisome trend that cannot continue to be allowed. The CBN claims that about N2.73 trillion of the N3.23 trillion currency in circulation in Nigeria is outside the bank vaults. It means about 85% of the total money in circulation. Also, the Naira is not as secure as it ought to be, as it is easier to counterfeit the N500 and N1000 denominations. 

The first time Nigeria redesigned its currency was in 1973, changing it from pounds to Naira and Kobo. In 1977, the central bank introduced the N20 note, the highest denomination. It had the portrait of the late Head of State, General Murtala Ramat Muhammed, who was a national hero because of his exceptional reforms and his unfortunate assassination. In 1979, the government introduced N1, N5, and N10, with inscriptions at the back of the notes reflecting various cultural aspects of the country. The government changed the color of all banknotes except the N50 kobo in 1984 to curb currency trafficking, which was standard during that time. Between 1999 – 2005, the government of Olusegun Obasanjo introduces N100, N200, N500, and N1000 banknotes. Two years later, the government printed N20 for the first time in a polymer substrate. Finally, as part of its contribution towards the 50th anniversary of Nigerian Independence and 100 years of its existence as a nation, the CBN issued the ₦50 Commemorative polymer banknote in September 2010 and the N100 Commemorative banknote in December 2014. However, none of these changes has attracted as much interest and debate as the awaited 2023 redesign of the naira.

This policy has provoked serious debate among economists, the public, and political heavyweights. Given the continuous level of the security situation in the country, some financial experts believe that the incidences of terrorism and kidnapping will minimize as access to large volumes of money outside the banking system used as a source for ransom payments will begin to dry up. They agreed that redesigning currencies could curb counterfeiting, especially where the existing design is worn. They questioned why someone would oppose the CBN currency initiative. But the public wonder why Nigerians will stash large amounts of currency outside the banking system in the face of the modern global push towards cashless transactions. Their argument points to the statistics that show 85% of banknotes are in the private vaults of public servants, politicians, drug barons, and other criminal elements. Advocates of good governance point to the positive impact/advantage it will bring from forthcoming elections in 2023. They point to the recent recourse of our politicians to buy votes in the face of election rigging. This group argues that redesigning the higher denominations of the Naira will effectively pull the rug from under the feet of unscrupulous politicians that have weaponized poverty in our society by embezzling our commonwealth. Hence, the introduction of the new notes will checkmate the plans of these politicians who plan to deploy enormous amounts of ill-gotten money they have stashed up in their private vaults to impel poor Nigerians to vote against their conscience and free will. The product of the policy to redesign higher denominations of the Naira would, therefore, grant Nigerians the free will to make their choices without any form of unethical inducement. In this way, the votes of the majority of Nigerians will count to usher into the realm of governance unselfish people that will genuinely serve the citizenry towards the long-term sustenance of social advancement. Despite the differences in the compelling realities presented by different splits in the Naira redesign discourse, they both point to an important truth: The new policy will not produce the desired results unless everyone supports it with a determined effort.

Politically, some opponents argue that the new policy will further depreciate the value of the Naira and exacerbate the excruciating inflationary trend that has continued to impoverish the citizenry. According to them, the policy would trigger a desperate rush for foreign currencies and, thereby, further deplete the value of the local currency and increase the already freezing rate of inflation affecting ordinary Nigerians. For example, after the CBN announced its intention to redesign the Naira, the exchange rate suddenly increased from almost N800 to $1 in the parallel market. They also point to the high cost of printing the new denominations in a period when our economy is in dire need of restoration. There are indications that this exchange rate may hit N1000 to $1 before the end of the year. Other opponents have held that the Naira redesign holds no significant economic benefits for the people. Instead, it was a distraction amid the severe financial crisis gripping Nigeria. The Federal Ministry of Finance seemed to be leading the opponents of this CBN policy when the Minister of Finance suddenly announced that her ministry was not aware of this fiscal policy initiative by the government. Appearing before the Senate Committee on Finance, the Minister disowned the policy and slammed it as valueless in fiscal and monetary terms, claiming she only knew about it through the media. But CBN reacted immediately, reiterating that it had received proper approval from the President before making the announcement. The Presidency under the leadership of Muhammadu Buhari instantaneously reaffirmed his decision on the policy and its benefits. He claimed it is a tool to control inflation and fight corruption. But others have argued that the CBN should have consulted the Finance Ministry since both organizations serve the same government. But Mr. Kingsley Moghalu, a former Deputy Governor of CBN, in an inclusive interview with Channels Television, said the bank does not need the permission of the Finance Ministry or any other government agency before making such a decision.

While some financial analysts praise the move saying it could address excessive flow and stashing of cash ahead of the elections next February, other public figures say it is ill-timed. They argued the change came too suddenly and close to the general elections. For them, if the CBN had waited for twenty years to make this change, they could also wait for another six months to make the change after the general elections. According to them, you cannot stop counterfeiting by changing the currency. You do so by finding those involved and getting them arrested. But financial analysts have criticized the public figure analysis. They argued that the reasons behind redesigning the currency sounded genuine. According to them, if 85 percent of banknotes in circulation are outside the banks, it is worrisome. For them, the CBN wants to force all those notes back into the banking system. Hence, an unorthodox way of tightening the money supply since the country is battling high inflation is to withdraw currency from flowing to personal vaults instead of the bank. Thus, those with the notes must surrender them to get new ones, or else it becomes illegal tender after January 31, 2023. But the flip side of this is that people holding enormous amounts of cash outside the banking system for nefarious reasons will go to the parallel market to buy foreign currency, putting more downward pressure on the value of the Naira. The ex-CBN boss, however, expressed doubt that the step would solve inflation. According to him, the policy is necessary for national security, but the window for implementation is too short. This policy will put operational pressure on commercial banks and the financial system in general. A 90-day window will have been better, but one can understand the need to avoid interfering with the elections.

The question is whether this policy is the right policy at this time. And what does this development signify for the economy and the lives of Nigerians? I am of the view that there are inherent gains in the redesigning of the Naira bank notes, provided there is a faithful implementation. However, there is a need for public enlightenment on this policy. Several experts have criticized that the 45 days to return the old currency is too short. The timeline for this exercise should have been a 90-day window since the rush to deposit money in the banks will happen once the new notes surface. But because a longer timeline will likely affect the election cycle, the CBN decided to reduce the time for the exercise. There are questions about whether those who do not have bank accounts could make over the counter to exchange the old banknotes. Many rural people have also raised concerns about the stress of going to their banks, which are far from where they live. To avoid a possible loss of value that could befall those with the old bank notes, commercial banks should make special arrangements to extend their business hours to weekends to enable customers to deposit old bank notes to receive new currency before the deadline. 

I cannot but agree more with the arguments of the CBN policy to redesign the 200, 500, and 1000 denominations of our Naira notes. I based my evidence on criminality, corruption, and the cost-benefits policy. Let us begin with the cost-benefit analysis. The CBN is a quintessential regulatory agency that regulates monetary policies. As the benchmark for regulatory decisions, the CBN can only act if the benefits of a proposed plan are more than the costs. A good cost-benefit analysis will include financial and commercial costs and social, political, and economic benefits. We should note that money plays a crucial role in an economy. It determines the price levels, aggregate national income, production and productivity, labor and capital use levels, and exchange rates. With the hoarding of vast sums of banknotes outside the vaults of apex banks, it will have no control over the economy. I am optimistic that the effort to redesign the Naira will, among other goals, deepen Nigeria’s push to entrench a cashless economy in the face of increased minting of the eNaira. I synchronize my argument with Mr. Kingsley Moghalu that the option of the CBN to redesign the naira notes is a vital step for the good of the Nigerian economy.

Following the decision of the Central Bank of Nigeria to redesign some Naira notes, the Economic and Financial Crimes Commission (EFCC) disclosed that it is monitoring at least three serving State governors linked to hoarding billions of Naira in their houses. The EFCC Chairman, Abdulrasheed Bawa, who made the revelation, said the governors are working to take the money to the bank or pay salaries through cash. While refusing to reveal the identity of the governors, Bawa partially identifies 2 of the governors from the northern part of the country, while the third governor is a southerner. When you hear that there is significant hoarding of banknotes by public officials and over 85 percent of the monies in circulation are outside the vaults of commercial banks, it is time to sanitize the system, especially now that election campaigns have started. But again, the deadline to return the old currency is too short because of the number of naira denominations involved. It might be good if the CBN considers extending the process if people cannot meet the target deadline.

After the CBN announced the redesign policy, naira notes printed as far back as over a decade ago began to circulate in minted form. Photos of the minted naira notes went viral on social media. We heard an anonymous voice in a video explaining that the printed date on the money in her hand was 2007. Although we could not verify the videos, they garnered massive reactions on social media. No doubt, the policy, if successfully implemented, will effectively demobilize the fraudulent cash at the disposal of politicians and make them utterly useless. Unquestionably, in the short term, Nigerians will suffer the consequences of a rush by the people to banks to dispose of old notes. But we will overcome because we have developed a thick skin to endure in this country. Therefore, if this policy will take us to the promised land as they claim, then it is worth the patience and endurance. As we wait to see the benefits of this policy, let us commend Mr. Emefiele and his team at the CBN for this fiscal policy initiation. For me, the decision to redesign the Naira is a Masterstroke. My only anxiety is whether the team will persevere to withstand the anticipated pressure from the unscrupulous elements that will work around the clock to prevent the full implementation and realization of the long-term benefits of the initiative.

Rev. Ma, S.J, is a Jesuit Catholic priest and doctoral student in public and social policy at St. Louis University in the state of Missouri, USA.