Related Articles
The Central Bank of Nigeria, CBN, announced the revamping of the higher denominations of the Naira within the week in an effort to regain control of the money in circulation in the face of a record inflation rate.
Thank you for reading this post, don't forget to subscribe!
The present N200, N500, and N1,000 notes must gradually be taken out of circulation and replaced with new ones by January 31st, according to the apex bank.
Over 85% of Naira notes, according to CBN Governor Godwin Emefiele, who announced the new policy, are not in commercial banks’ vaults. Out of the N3.23 trillion in circulation, the CBN governor clearly stated that more more N2.27 trillion is missing from commercial banks’ vaults.
For further information, he stated, “As of the end of September 2022, available records at the CBN indicate that N2.73 trillion out of the N3.23 trillion in money in circulation, was outside the vaults of Commercial Banks across the country; and purportedly owned by the public.”
The CBN’s ability to control the amount of money in circulation through monetary policy is compromised by this circumstance.
As was previously mentioned, the bank increased the Cash Reserve Ratio from 22.5% to 32.5% in an effort to decrease the amount of money in circulation and control inflation.
The CBN controls the overall amount of money in circulation in order to reduce inflation. It helps to prevent demand-push inflation, which results from the “more money chasing fewer products” concept, by limiting the amount of money in circulation.
If it is true that more than 85% of currency in circulation is not kept in a commercial bank’s vault, then the bank’s monetary policy may not be able to have the desired impact on inflation, which as of September was above 23%.
Aside from inflation, the other problem the CBN is attempting to solve is the money that bandits have obtained through ransom.
According to Emefiele, “the bank is certain that [terrorist and abduction occurrences]would be diminished as access to significant amounts of money utilized as a source of cash for ransom payment will begin to dry up.”
Subject to the president’s consent, Section 20(3) grants the CBN the authority to recall notes.
Despite subsections (1) and (2) of this section, the Bank shall have the authority to call in any of its notes or coins upon the President’s direction and after giving reasonable notice in that regard. Any note or coin with respect to which a notice has been given under this subsection shall cease to be legal tender upon the expiration of the notice, but shall, subject to subsection (2) of this Act, be redeemed by the Bank.
Despite this influence, there have been conflicting responses to the CBN’s pronouncement. Many people have used social media to criticize the CBN’s suggestion, claiming that it will do nothing to ease the nation’s inflationary burden.
Others have raised concern that merchants may begin to turn away old Naira notes in advance of the bank’s deadline.
When testifying before the Senate Committee on Finance, the minister of finance, Zainab Ahmed, spoke out against the plan. She feels that the timing is off.
“The policy, as it is being implemented at this time, portends significant effects for the value of the Naira to other foreign currencies,” she added. “As a Nigerian who is privileged to be at the top of Nigeria’s fiscal management.”
Reno Omokri, a supporter of Atiku Abubakar, the leading contender in the opposition, had tweeted in favor of the measure.
“It makes sense to redesign the Naira. Naira that cannot be banked is kept in stockpiles by kidnappers, bandits, and corrupt individuals. Their billions will be useless as a result of this move. The pound and the dollar have undergone numerous redesigns. Emefiele did well on this! Tweeted him.
experts’ judgment
Regarding the two key issues brought up by the CBN governor, Dr. Musa Sabiu, an economist at the University of Abuja, disagreed with Mr. Emefiele. He asserted that Nigeria’s inflation is structural in nature and goes beyond monetary policy.
“Money supply is a straightforward economic concept. Inflation results from an excess of money pursuing a small number of products. However, Nigeria’s inflation issue is structural rather than monetary. We have a vast population and a very low level of production capability, therefore changing the currency or cutting the money supply won’t make a difference. There has been no electricity and a closure of industries. Your industry’s alternative fuel, diesel, has soared in price to about N1000 per litre. How do you make?” He asked.
Mr. Sabiu also rejected the claim that the program will prevent criminals like bandits, kidnappers, and terrorists from accumulating naira.
“Who informed you that criminals only keep Naira in their bank accounts? Banditry, armed robbery, kidnapping, and Boko Haram are all examples of organized international crime. Do you really believe that common Fulani illiterates could abduct someone, set up ransom, and get away with it? Better thinking is behind them. Because of this, the value of the naira keeps decreasing. People acquire dollars as a store of value and a way to keep the proceeds of crime, not necessarily to import goods. Who has the naira? Government is chasing its tail, he claimed.
Dr. Masu Gombe, another economist at the University of Abuja’s Department of Economics, also held onto this position.
He claimed that because Nigeria imports more than it exports and is thus exposed to foreign economic activity, the country’s inflation problem is not a domestic one.
According to Dr. Gombe, cost-push inflation will occur in Nigeria if there is inflation in those other nations. He added that effective demand is necessary for inflation to be controlled.
“Of course, by implementing this new strategy, you will regulate the money supply, which implies that consumption will diminish. If consumption declines, this means that production will also shrink and employment will decrease as a result of layoffs. That is a tragedy because it means you are mortgaging the effective demand for autonomous consumption. Crime will result from this, he said.
He contended that, given the nation’s current state of transition, anyone who counseled the president to take such action were being naughty.
“Left to me, those who gave him that advice are cunning,’ they said. Because if you left it to him—and remember, he’s not an economist—you would realize that everyone pushing for this kind of thing is acting in their own interests, not that of Nigerians, he claimed.
In the short term, he continued, the strategy will hurt rural company owners and entrepreneurs who have been active in a cash-based economy. He continued by saying that politicians, who might be hoarding funds to give to followers, will also be impacted.
2016 Indian policy
This most recent CBN approach is comparable to the “shock and awe” strategy unveiled by Indian Prime Minister Narendra Modi in 2016.
In order to combat black money, the Indian government ordered the elimination of the 500 and 1,000 Rupee notes.
In India, the program had sparked a great degree of concern, and many people hurried to banks to exchange money. The upheaval led to some decisions that were difficult for the Indian populace.
EFCC comes on board.
The Economic and Financial Crimes Commission, an anti-corruption organization, has also declared that it will keep an eye on ill-gotten gains as the phase-out approaches.
In a statement on Wednesday, AbdulRasheed Bawa, the chairman of the EFCC, supported the CBN’s action and cautioned Bureau De Change employees about hoarders.
There is a chance that the EFCC’s involvement would provide an additional backlog for those looking to exchange their old notes for new ones.
As things stand, opinions on the policy are divergent not just among specialists but even within the government.
