The Naira redesign crisis : A careful analysis

By Pascal Ebhohimen, PhD

There are four actors in the crisis : the rogue politicians , the banks, the customers and the CBN.

The CBN has a statutory mandate to change the design of national currency from period to period in time . Currency in texture and colour can undergo change and this is the practice worldwide. There is therefore nothing unusual about the redesign of our currency so long as it remains a legal tender in exchange of goods and services.

It must however be redesigned for a particular purpose or reason(s). It must also be done in a manner to create value for the system while contributing to an effective monetary policy and financial stability. In the contrary, it should not contribute to the instability of the financial system.

Now, the Nigerian banks have a responsibility to intermediate between the surplus money end and the deficit end by helping to take money from individuals, groups and corporate organizations with surplus funds for on lending to those individuals and corporate organizations that need money for their businesses. It is important the banks manage these funds operationally and prudently in a manner they remain safe and sound. Part of this management is cash or liquidity of the banks. If too much cash is withdrawn gradually or suddenly daily and loan takers and the variegated customers are not paying back in the same amount and speed as they withdrew such funds, the bank can go into liquidity crisis albeit temporarily.

Also read: Finally, an end to Naira redesign conundrum

The public or general customers , borne out of panic and fears, can stampede a bank in demand of their money. A bank already in severe liquidity crisis might not be able to stand a run on the bank. What we are seeing today is a run on the banks for either for their old naira or new notes.

Now let’s examine the current situation in the country with the rogue politicians and top bank management cooperating to sabotage the effort of the CBN to use monetary initiative and policy to sanitize the electioneering process in Nigeria on the one hand and to ensure effective monetary policy to sustain and stabilize the financial system.

The rogue politicians particularly those running for elective offices, who had plans to use money to induce voters in their favours had taken a lot of money from the banks. This led to a sudden depletion of the cash positions in these banks.

Meanwhile, the recalcitrant debtors have not paid back the borrowed funds. Again with the old and new naira swap and the run on the banks, all have tended to create the crisis in banks as banks are unable to meet the demand.

The printing of money and issuance to the market is guided by regulatory policy and guidelines in order to maintain and indeed sustain the stability of the financial system.

The fact that banks are experiencing liquidity crisis does not require the CBN to pump money into the affected banks beyond the capacity of the banks for such funds. Meanwhile, the federal government of an APC-led government under General Muhammadu Buhari had taken so much loans through “ways and means” from the CBN. How much new naira notes can be further printed by the CBN with the federal government not paying back such loans to the CBN? The CBN has its own capacity and limit to printed money. All these issues are mixed up today, this hour.

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Obviously, some of the banks are experiencing some difficulty or distress conditions, while some of these banks are being affected by the imminent problem created and engineered by the rogue politicians who had stacked away huge money and unable to get them exchanged for the new naira notes. Even those who had dumped such funds back to the banks, as a result of the CBN’s guidelines on withdrawals or unavailability or insufficiency of new naira notes in banks are now unable to get the huge amount back from the banks while at the same time the banks had returned the huge cash of old notes to the CBN.

The CBN cannot for reason of the crisis that has led to the temporary suffering of our people, pump cash over and above the capacity of the banks to the affected banks experiencing temporal illiquidity or cash imbalance. This is the crux of the matter.
Politicians are the cause of our problems and the current crisis precipitated and facilitated by insincere and dishonest bank management.

I sincerely appeal to the general public and bank customers to avoid violence in the pursuit of their interests but to have patience for some of the banks to go over this crisis. The CBN can give a temporary liquidity support to some of the banks in great crisis.

Meanwhile, our people should adopt “trade by barter” in the exchange of goods and services at this period. Those who have yams should exchange for those who have tomatoes and rice, and hunt more for protein stuff in the rural areas in exchange for other food items.

Election must go on, 25th February and 11th March are dates with history to change the government of Nigeria at the federal level and state including our state houses of assembly.

God bless this country!