The Central Bank of Nigeria (CBN) on Wednesday announced its plans to change the design of the nation’s currency notes in the categories of N200, N500 and N1000 in its bids to fight counterfeiting, huge naira outside the banking system and ensure effective and efficient management of the currency.
The introduction of the redesigned currency which will take off from December 15, 2022, will have the exit of the old design by January 31, 2023; this will lead to the attraction of huge currency, put at over 80 per cent currently outside the banking system back to the economy.
It’s a reminiscence of what happened during the first coming of President Mohammadu Buhari as military head of state in 1984 when he chose to change the colour of the currency in his efforts to confront huge corruption and ensure that politicians who have stacked away the naira are made to pay huge price for that.
However, to date, there is no record of study to show how successful was the measure taken 38 years ago on the economy, the politics and the value of the currency.
Some of the reason provided by the CBN Governor, Godwin Emefiele for embarking on the latest currency redesigning is:
According to Emefiele at the media briefing, the regulatory bank has finalized arrangements for the new currency to begin circulation from December 15, 2022. The new and existing currencies shall remain legal tender and circulate together until January 31, 2023, when the existing currencies shall seize to be legal tender.
The positive effect of the measure
Many people have suggested that the new measure could restore confidence in the local currency as the bulk of the naira note stacked away by politicians, criminals and other illegal operators would be returned to the banking system, helping the CBN to monitor the currency in the economy.
It is also expected that with the new notes, most tattered naira notes currency pushed into the system would be eliminated while counterfeiters would be refrained for a couple of years in carrying out their illicit business.
Another angle to look at the measure is the positive effect it will have on crime in the country. Currently, Nigeria is having challenges with terrorists and banditry across the country with money being paid to kidnappers as ransom running to billions of naira.
It is expected that the ransom money that is yet to find its way into the banking system would be brought out to be exchanged for the newly redesigned notes. This could also lead to crime detection and probable prosecution as many who could not explain the sources of their wealth may find themselves in trouble with law enforcement agencies.
Also, politicians who have stacked away money for the purpose of vote buying during the forthcoming election may have a difficult time changing their notes into the new naira while bringing such money back to the system could upset some of their plans.
The offside of the new measure
The huge cost of printing the new note could run to trillions of naira, which the economy may be least prepared for with the current state of the economy, the state of the nation’s foreign reserves since the currency is expected to be printed abroad and the implications for the balance sheet of the central bank.
Learning from the previous similar occurrence 38 years ago, the economy will surely be upset by the change in the currency as many merchants and petty traders would start rejecting the old notes ahead of the implementation of the policy on December 15.
The cost of food and other items will shoot up as the naira notes for transactions will become scarce while many people may go hungry because they could not get new naira to make necessary purchases.
The banking hall will be jam-packed with people scrambling to exchange their old currency for new notes, putting pressure on the lean capacity of the banks to process currency.
Armed robbery could escalate with criminals targeting bullion vans to be used in the distributions of the new notes in some rural areas in a bid to minimize their losses on the old naira notes stacked away previously in order to evade the law.
Both the CBN and the banks will face logistic challenges in the distribution of the new notes across the country with the rate of crime in form of banditry and terrorism across the country escalating. Also, security around the banks would be threatened because of the huge demand for the new notes as criminals could also take advantage of the change-over to commit their illicit trade.
There is the possibility that counterfeiters may take advantage of the lag in distribution to circulate their own notes in some parts of the country, which may not be effectively covered by the publicity around the new notes.
There is also the possibility of the exercise being hijacked by corrupt politicians who may want to compromise officials of the CBN and banks to circumvent the system for their selfish interests.
Lessons from the 1984 experience
In April 1984, all the notes were withdrawn and reissued in interchanged colours, except the 50 kobo note. This was done by the military administration which took over power in December 1983, to arrest the alarming rate of currency trafficking going on at the time. However, the coins remained the same.
38 years ago, the change in the colour of the naira and the reissue of new notes put some strain on the economy as many people suffered as a result of their inability to buy or sell due to the shortage of new notes.
Although the local currency was stronger in value than other currencies then, which means the change did not directly impact the value of the naira and the exchange rate of the naira.
The corruption component of the reissued naira was managed properly because of the reputations of the then military leadership which was seen as disciplined and determined to fight corruption.
The population of the country was lower than what we have today. Nigerian population was 81.45 million in 1984, unlike today where the population is over 200 million with the vast majority living in abject poverty and in rural areas.
Though there is no study to show the success or otherwise of the measure back then, from the accounts of many people who witnessed the exercise, the disruption in the economic activities during the change was lower than the gain recorded as many corrupt politicians lost money to the process as they were afraid to return back to the system what they have stolen from the economy.
Nevertheless, many Nigerians went through a difficult time in getting their old notes exchanged for new ones as a result of the slow process by bank officials, providing opportunities for backdoor activities which marred the exercise back then.
Would history repeat itself?
There are optimism that unlike in the previous exercise, the impact of the new measures may be minimized due to the expansion of banking activities across the country. There are more bank branches, spread across the country unlike in 1984, providing opportunities for seamless operations if properly managed.
The advent of technology has reduced the role played by cash in some areas as many people today depend largely on electronic banking, which has reduced cash management largely in the urban areas and among the elites.
The new measures therefore could enhance the use of e-banking, the recently introduced e-Naira and cash management by both the CBN and the banking industry.
However, there are still fears that many people in rural areas who would suffer significantly because of the low presence of banking, the inefficiency of electronic banking in such areas due to network failure and the low level of financial literacy in the country.
What the CBN should do ahead of the change
It’s imperative that the CBN should embark on massive public enlightenment across the country to sensitize Nigerians to the new measure and its implications for their daily lives.
There are millions of Nigerians living in rural areas who may never get to know about the new development while criminals may also likely exploit such ignorance to deprive them of their hard-earned money.
The CBN should also come clean on the cost implications of the new measure to the economy and ensure that it tightens up all loopholes that may impact negatively on the implementation of the new policy.
Also, security agencies such as the Economic and Financial Crime Commission (EFCC), the Nigerian Financial Intelligence Unit (NFIU) and other relevant security agencies should ensure that ill-gotten money is traced and the criminals are punished for their maleficence against the collective interest of the Nigerians.
The regulatory bank should also work hard to ensure that its currency management team is properly scrutinized to ensure that they do not compromise the security and efficiency of the new process.
These are the views of some people on Twitter
“It seems there is something Mr Emefiele is not telling. Why would anyone stash the Naira of all the currencies in this world? It makes little or no economic sense considering the fact that the Naira has lost considerable value against most currencies. And Inflation +20 per cent.”
“Potential to record/track illicit funds as Banks would need to declare sums to NFIU, +ve. Distribution of money to layer their sources, causing money laundering, -ve. Possibility of increasing inflation rate as more money are now in circulation, a -ve.”
“My concern is the timeline. The UK just changed notes. The notes that just expired was last issued in 2007. A 15-year programme of change. And we are doing in 60 days. UK is circa 75 million people. Nigeria is circa 200 million people.”
“- Surge in deposits/account activities due to legitimate reasons. – Surge in cash activities from monies made from illegitimate sources. Monies not in the banking system. – People that bring in lots of mutilated cash are highly suspicious.”
“A lot of stolen cash will be cut off from the system. 2. More cash/people will enter the banking system. 3. Counterfeiting will be stalled for a few years. 4. It will shake up political plans for buying the coming elections.”