Issues in the 2022 redesigning of Naira notes by CBN

 

Introduction

On Wednesday, October 26, 2022 at a media briefing the Governor of Central Bank of Nigeria, Godwin Emefiele announced the redesigning of some of the banknotes. He hinged the apex banks decision on the powers conferred on it by Section 2 (b) of the CBN Act 2007. According to Emefiele, currency management by CBN has faced a number of challenges for some time now. This include: Significant hoarding of banknotes by members of the public, with statistics showing that over 85 percent of currency in circulation are outside the vaults of commercial banks. At the end of September 2022, available data at the CBN indicate that N2.73tn out of the N3.23tn currency in circulation, was outside the vaults of Commercial Banks across the country; and supposedly held by the public. This, to my own mind, is indicative that Nigerians have not fully accepted the cashless policy of the Central Bank.

Other challenges are: Worsening shortage of clean and fit banknotes with attendant negative perception of the CBN and increased risk to financial stability; Increasing ease and risk of counterfeiting evidenced by several security reports. Although global best practice is for central banks to redesign, produce and circulate new local legal tender every 5–8 years, our existing series of the Naira has not been redesigned in the last 20 years.

CBN believes that the redesign of the currency will help deepen our drive to entrench cashless economy as it will be complemented by increased minting of our eNaira. This will further rein in the currency outside the banking system into the banking system thereby making monetary policy more efficacious. Also, in view of the prevailing level of security situation in the country, the CBN is convinced that the incidents of terrorism and kidnapping would be minimised as access to the large volume of money outside the banking system used as source of funds for ransom payments will begin to dry up.

 

Legal backing

In line with provisions of Sections 2(b), section 18(a), and section 19 subsections a and b of the CBN Act 2007, the Management of the CBN has sought and obtained the approval of the president to redesign, produce, release and circulate new series of banknotes at N200, N500, and N1,000 levels. CBN said it has finalised arrangements for the new currency to begin circulation from December 15, 2022 after its launch by President Muhammadu Buhari. The new and existing currencies shall remain legal tender and circulate together until January 31, 2023 when the existing currencies shall cease to be legal tender. For the purpose of this transition from existing to new notes, bank charges for cash deposits have been suspended.

Finance Minister kicks

Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed, has kicked against plans by the Central Bank of Nigeria (CBN) to redesign some naira notes. She said the ministry was not aware of the plans and only knew about it through the media. She said this on Friday, October 28, 2022 when she appeared before the Senate Committee on Finance for the ministry’s budget defence session. A former deputy governor of the CBN, Kingsley Moghalu, has however expressed his support for the bank’s decision to redesign some of the country’s currency notes. He said the bank does not need the permission of the finance ministry or any other agency of government before making such a decision. Moghalu made the comment in an interview with Channels Television on Sunday, October 30, 2022. Many are however of the view that the CBN should have consulted the Finance Ministry since both organisations are serving same government.

The real purpose and intent of the redesign

Many financial experts are of the opinion that the rationale given for the redesigning of the country’s banknotes are both economic and political although the CBN only dwelt on the economic reasons for the exercise. Many citizens have questioned the timing of the proposal which is on the eve of 2023 General Election. For instance, the Edo State Governor, Mr. Godwin Obaseki, has described the proposed plan by the Central Bank of Nigeria to redesign naira notes as political, noting that the move was a ploy by the All Progressives Congress-led government to sway voters ahead of the 2023 general election.

Politically speaking, it is believed that many candidates and political parties who have kept humongous sums of the nation’s currency in fireproof vaults in their homes, in overhead and underground water storage tanks and on the farms will be forced to bring such into the bank vaults to exchange for the new banknotes. In the process, the banks will alert anti-corruption agencies such as the Nigerian Financial Intelligence Unit which is the central national agency responsible for the receipt of disclosures from reporting organisations such as banks. The agency will upon receipts of reports of the expected huge lodgments go after such account owners to ask them about the source of the money to establish that it is not proceeds of crime. It is also believed that even if the deposited funds are  not proceeds of money laundering or financial crimes, such depositors may not be able to withdraw such lump sum from their account on request. There are fears that a policy may be issued to peg the amount of cash withdrawal any individual or corporate bodies can withdraw at a go thereby forcing them to go cashless via electronic transfer of funds which will leave trail of bank transactions which politicians who may want to indulge in vote buying will not like.

There are insinuations that while opposition political parties and candidates may not be allowed to withdraw huge cash for the campaign expenses, candidates of the ruling All Progressives Congress may have unfettered access to the new banknotes. A case of double standard of the law being for the enemy, exemptions being for the friends.

Whether political or economic, there are fears that the criminals such as kidnappers, money launderers and the counterfeiters who may be the prime target of this redesigned notes are clever and smart and may be able to circumvent being trapped. For instance, many of these economic saboteurs are alleged to be using their slush funds to buy real estates, lands, exotic vehicles, jewelries and ornaments with the hope of disposing these assets off after the new banknotes would have effectively been in circulation. Many others are converting their naira into foreign currencies such as Dollar, Euros and British Pound Starlings.

The PUNCH newspaper of Thursday, November 3, 2022 reported that 87 forex dealers in Abuja and Lagos were arrested with their phone seized by operatives of EFCC who carried out a raid on the Bureau De Change operators in the two cities.  Though no reason had been given for the raids, the EFCC operation, it was gathered, was targeted at tracking illicit funds from terrorists, bandits and politicians who might want to convert their stash in a desperate move to beat the redesign of the naira announced by the CBN. EFCC chairman AbdulRasheed Bawa has warned the forex dealers against serving as cash couriers for criminals. They have been ordered to ask for proper documentation of their clients under the Know Your Customer principle.

In spite of this clampdown on forex operators, not a few Nigerian are of the opinion that even bank officials may be the one that will take advantage of this situation to make some cool cash for themselves as they know the rules and also know how to cleverly circumvent and sabotage them. For instance, despite the Know Your Customer principle and mandatory Bank Verification Number, some influential Nigerians still find it easy to transact illegal businesses in banks because of unscrupulous bank workers who aided and abetted them.

Long and short term impact on the economy

The short term impact of the proposed exercise on the economy has been unsavoury with naira slumping against foreign currencies especially the Dollar. It was gathered that last week, Naira depreciated further against dollar by exchanging for about N850 – 1$. This is unprecedented! However, I am of the considered view that if there are no sabotage and the exercise is carried out patriotically, in the long run, CBN will achieve the noble objectives of the exercise.

Cost of the redesign and whether or not it is even desirable at this point

CBN has not and is most unlikely to disclose the cost of redesigning our banknotes. The speculation is that the amount is humongous. More so as it may actually have been contracted to foreign firm and not the Nigeria Printing and Minting Company because of the high security features in the currencies in order to make it extremely difficult to be counterfeited. Questions have also been asked as to whether this printing job was captured in the CBN budget for 2022.  

It is noteworthy that there is a pending suit against the CBN on the Arabic inscription on the naira note. The Cable newspaper in a November 10, 2022 publication reported that the CBN has opposed a suit before the federal high court in Lagos seeking to remove Ajami (Arabic) inscriptions on the naira notes. CBN told the court that it will cost a lot of money to discard existing notes and print new ones without Ajami. It also said Ajami is not a symbol or mark of Islam, but an inscription to help non-English speakers who are Ajami literate. The apex bank made the submission in a counter-affidavit to a suit filed by Malcolm Omirhobo, a Lagos-based lawyer, before Mohammed Liman, presiding judge over the case. The redesigning of the naira banknotes therefore presents a golden opportunity to lay this controversy to rest by removing the Ajami inscriptions.

Conclusion

I am of the considered view that there are inherent gains in the redesigning of the naira banknotes provided there is faithful implementation. However, there’s need for a lot of public enlightenment on this. There have been calls that 45 days is too short for the exchange of old notes for new ones. There’s also the question of whether those who do not have bank accounts could make over the counter exchange of old for new notes. Many rural dwellers have also raised concern about the stress of having to go to their banks which is far from where they reside.

First published in the LAWYER pullout of today’s THISDAY newspaper.