On Redesigning the Naira Notes – by Frank Ofili

On Wednesday October 26, the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, announced that the apex bank has redesigned some Naira notes, and that their circulation, nationwide, would commence on December 15, 2022.

According to Emefiele, the Naira notes so affected are N200, N500 and N1,000. He further said that the old notes and the new ones would circulate together till January 31, 2023, when the old notes would cease to be legal tender. Mr. Emefiele cited, among other reasons, the need to deepen cashless policy and curtail the hoarding of the Naira, as justification for redesigning the bank notes.

I do not often agree with Mr. Emefiele. Indeed, I am on record for calling for his sack for the mess the CBN under him has made of our Naira, and also for even contemplating to venture into partisan politics while still holding office as the country’s equivalent of the Chancellor of the Exchequer.

On this one however, I am largely in agreement with the apex bank boss, save for one area where I have misgivings. Section 2(b) of the CBN Act 2007 gives the CBN power over control and management of the nation’s currency. In line with this power, the CBN governor has acted, and has given his reasons for redesigning some Naira notes.

First, it is well within international best practices to redesign a country’s currency every 5 or so years. The Naira was redesigned last some 20 years ago. The CBN boss also said this move will check ransom payments, terrorism financing as well as counterfeiting of the Naira. It will also help to mop up money outside the banking system and curb the incidence of Naira hoarding.

The redesigned Naira notes, it would appear, would carry extra security features that would make counterfeiting more difficult. However, it is on the aspect of hoarding and mopping up money outside the banking system that I am not so sure about. More on this later.

Now, I have read some people argue that the latest CBN move is aimed at addressing the prevailing prohibitive and unstable exchange rate. May be, may be not. But the fact is, I really can’t see how redesigning a country’s currency would improve its fortunes in the exchange market if the economic fundamentals of the country remain the same. I do know however that the value of a country’s currency is determined by a whole lot of factors, chief of which is availability of foreign exchange, and availability is mostly determined by the sources of her export earnings. In other words, how diversified are her sources of foreign exchange earnings. A mono-cultural economy like ours will always have to grapple with foreign exchange challenges, and only a central bank manager in the mould of Alan Greenspan would successfully navigate the monetary policy mix that would keep exchange rate stable and inflation low.

Greenspan was the chairman of the Board of Governors of the US Federal Reserve Bank (1987 – 2006) best known for presiding over the Great Moderation, a period of relatively stable inflation and macroeconomic growth that lasted from the mid-1980s to the financial crisis in 2007.

Now, back to my reservation about the efficacy of re-desiged Naira notes helping to curb hoarding and curtail money outside the banking system.

Well, I think one of the main reasons people hold money outside of banks is because of the inefficiency of the banking system itself. It is sad that despite the astronomical growth of the industry, aided by technology, confidence in the system is still low for a number of reasons, viz, lack of transparency, monetary policy instability, outright fraud and kindred sharp practices, perennial incidence of failed transactions that take eternity to resolve, among others.

Official corruption and government’s penchant to sabotage its own policy do not help matters either.   For instance, CBN’s cashless policy for payments is still in place, but it is the same CBN that would turn its eyes away from heavy cash withdrawals in billions by politicians, government officials and other big men for less than honourable dealings. No one would deny that Naira and Dollars are currently being stockpiled for election purposes. We saw the forerunner of what would come during party primaries earlier this year.

There is also the issue of general insecurity in the land, which is well beyond the control of CBN. It is somewhat ironic that as CBN aims to curb naira hoarding and mop up money outside the banking system, kidnapping, terrorism and banditry which currently pervade the length and breadth of the land, all combine to somehow force high profile individuals, who, fearing for their lives, and that of their families, would not mind keeping some hefty cash within easy reach, just in case. This is not to talk of raw cash wantonly and brazenly looted from government coffers being stashed away in farmlands, soak-away pits, and overhead water tanks. We have seen it before.

Near-absence of banks in the rural Nigeria occasioned by its attendant lack of social amenities is yet another factor.

All this aside, how exactly will redesigning the Naira note address our attitude of emotional attachment to paper money? Or terrorism financing for that matter? We all know terrorism has some international financing connection.

It seems to me, then, that redesigning the Naira – the merit of it notwithstanding – may not be a path to walk in a bid to strengthen confidence in the banking system and thus, take firm control of currency in circulation. A much more credible path, in my opinion, may lie in ensuring monetary policy consistency, strengthening regulatory controls of the system, enforcing transparency in the system, and of course, a strong, swift and credible justice system. It may also help for the CBN to resurrect the now rested rural banking policy.

I rest my case.