The actions by the apex bank in respect of the Naira redesign policy fell squarely within the bounds of the powers guaranteed under the provisions of the Central Bank of Nigeria (CBN) Act 2007, its governor, Godwin Emefiele, has said.
Emefiele, who was briefing diplomats in Abuja on some monetary policy decisions the bank has taken in recent times, said apart from receiving a formal approval from President Muhammadu Buhari, an extensive in-house analysis and consultation on some economic challenges informed the policy to redesign the N200, N500, and N1000 Naira banknotes.
He said in accordance with the presidential approval received on October 26, 2022, the redesigned banknotes were to circulate concurrently with the old notes, up to January 31, 2023 after which the old notes would cease to legal tenders throughout the country.
However, given the need to improve the level of circulation of the new notes, he said the deadline was extended by another 10 days to February 10, 2023 for the old Naira notes to continue to circulate as legal tenders.
As a key function of the CBN, enshrined in Section 2(b) of the CBN Act 2007, Emefiele said the Naira redesign was undertaken as part of its currency management function due to persistent challenges inundating currency management in the country, which are undermining the apex bank’s sovereign integrity.
The currency redesign policy, he said, was also consistent with Sections 20(3), which gives the CBN the power to recall extant banknotes or coins following the approval of the President and a reasonable notice period.
“Our actions, thus, falls squarely within the bounds of the powers provided by the Act, as we sought and got Presidential approval and gave 100 days’ notice in the first instance, which was later extended by another 10 days. This was to allow Nigerians to deposit their old notes at the CBN and gradually redeem the new notes,” he explained.
As is the general practice across the world for central banks to redesign national currency within 5-8 years, Emefiele said from the on-set of the exercise, the CBN made it clear that the redesign and reissue of the Naira banknotes, which he described as an important currency and liquidity management function for effective monetary policy, had not been done for over 19 years.
He said that the primary aim of the Naira redesign initiative was to make monetary policy decisions more effective, in terms of tackling rising inflation and unstable exchange rates.
The other reason for embarking on the Naira redesign, Emefiele said, was to help increase financial inclusion in the country by reducing the population of the unbanked, while supporting the security agencies’ efforts in combating banditry and ransom-taking in the country.
From about N1.4 trillion as currency in circulation in 2016, the CBN governor said as of October 2022, currency in circulation had risen to N3.23 trillion.
Out of the amount, he said only N500 billion was within the banking system, while N2.7 trillion was held in people’s homes.
These, he said, indicated that so far, excessive amounts of currencies were in people’s hands rather than in banks or in cashless platforms. “Ordinarily, when CBN releases currency into circulation, it is meant to be used and after effluxion of time, it returns to the CBN, thereby keeping the volume of currency in circulation under the firm control of the CBN.
But the CBN governor noted that the Naira notes in private homes outside the banking system were not available for economic activities, thus may have affected the economy attaining its potential growth.
On the expected benefits of the policy, Emefiele said currency redesign are always undertaken by countries to strengthen the performance of key macroeconomic parameters and combat social improprieties. He said the policy was expected to reduce the amount of cash in under-ground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market.
By reducing currency outside banks, the CBN governor said it would shrink money stock and accordingly lower the long-run path of inflation.
“The ensuing deflationary pressure could elicit interest rate cuts that will in the short-to-medium-term boost economic activities, spur aggregate demand, and enhance output growth.
Other economic gains for the country, he said, inclu reduction in money supply, lowering inflation, and exchange rate stability.
Acknowledging the widespread inconveniences as a result of the policy, Emefiele said the CBN observed pervasive incidences of hoarding and predatory activities of some vendors and unscrupulous Nigerians, saying the principal causes of the hardship to the people from the redesign policy include hoarding of the new notes and restricting their flow through the economy.
Besides, he blamed the tension in the country as a result of agitation by politicians who staged and sponsored propagandas or an exaggeration of the reality.
To ease the tension, the CBN governor said Over-the-Counter payments has since commenced to compliment automated teller machine disbursements and the use of super agents.
He condemned pockets of panic queues that have surfaced at some bank ATMs and banking halls, saying while some of these withdrawal requests were genuine, some were as a result of the activities of miscreants who do not have the genuine intention of making a withdrawal, but were seeking quick-earnings by queuing up just to sell their spaces to make money.
He accused politicians of buying up the new notes from circulation and storing them for political purposes, while some others, especially at filling stations, were capitalising on the transition to charge exorbitant fees or demand cash payment on the false pretext faulty POS machines.
“These selfish actions for personal monetary gain are creating hardship for Nigerians and may come at the expense of fellow citizens lives and livelihood,” he said. He reassured the people of the availability of the new notes and the other currency denominations through the deposit money banks (DMBs), other financial institutions (OFIs), mobile money operators (MMOs), Super Agents, mortgage finance banks (MFBs) and payment system providers, while the anti-graft and other law enforcement agencies would help to ensure orderly financial transactions through electronic channels.
