A currency note serves as guaranteed legal tender for the exchange of goods and services by each nation’s central bank.
For sovereign governments, redesigning currency is a legitimate activity. It enables the nation that issues the money to strengthen the currency’s security to fend off counterfeiting. Cleaner materials are used in the new notes to prevent contamination and soiled conditions.
In September 2022, the United Kingdom (UK) finished a five-year initiative to revamp its currency. Two years before to the debut in 2016, they investigated the effects of introducing the notes from Canada and periodically updated the public. The European Central Bank stated in December 2021 that a process to choose new currency designs has begun. By 2024, it will have held consultations with citizens of all 19 of the countries that utilize them.
Therefore, the announcement of the policy to redesign the Naira by the Governor of the Central Bank of Nigeria was not unexpected. Stopping illicit activities like tax evasion and counterfeiting will be advantageous for the nation. Since the thieves can’t exchange their papers in the bank, changing the currency will render the counterfeit money unusable. Tax evaders will be forced to swap their current currency, which implies the government will tax them in the past.
However, if the policy’s goal is to reduce criminal activity and tax evasion, they can finish it in more time than the allotted six weeks. Everyone who is unable to meet the six-week limit has already been accused of having illicit money by Buhari. Why therefore the franticness? Are they aware of the expenses they will have to pay? Will the advantages exceed the expenses incurred?
The foreign exchange market responded right away as the value of the naira continued to fall. A weakened currency is bad for an economy that depends on imports and is therefore vulnerable to global shocks. The weak economy that is rebounding from two recessions in six years is not doing well overall, according to the market reaction.
In a perfect world, the government would be concerned about people who might suffer. For instance, the UK accepts that old notes may be exchanged for new ones at any time after the currency exchange deadline has passed. Both the Central Bank and participating Post Office locations accept this. Commercial banks continue to accept them solely as deposits, not for exchange. Similar policies were utilized in some European nations, but some set a five-year deadline while others allowed for unlimited time for the exchange.
The policy is bad because it makes me think of 1984. Our textbooks demonstrate that Buhari’s approval of the country’s currency redesign in 1984 contributed to the economic downturn as a result of people’s wealth evaporation. For individuals who missed the deadline to trade within the allotted six weeks, concern over their wealth evaporating is also growing today. Contrary to what the President believes, more people have legitimate incomes and will struggle for unknown reasons to swap them during the window. Despite the fact that we live in a democracy, it doesn’t appear like the policy was created with democracy in mind.
Remember that in November 2021, the central bank (CBN) reported spending N58 billion to produce 2.5 billion notes, totaling N1.1 trillion. It will cost the CBN roughly N174 billion to print the money because there is reportedly about N3.2 trillion in circulation. Will taxes in Nigeria be sufficient, or will the new notes be able to cover the costs of unlawful activity there? The estimations will be based on the N2.73 trillion in cash that is currently in circulation outside of bank vaults.
Despite what some people may believe, only 6.5% of the nation’s total money supply is in the form of cash. All legal tender in circulation as well as savings deposits held by banks and other depository institutions in their accounts with the CBN are included in the money supply. Certificates of deposit issued by banks, term deposits with the banking system by citizens, call/term borrowings from “non-depository” financial firms by the banking system, and “Other” Deposits with the CBN are further sources of money supply. The CBN’s Money and Credit figures show that as of August 2022, Nigeria has a total money supply of 49.5 trillion. As of August 2022, 49.5 trillion.
According to respective apex banks, the United States circulates around 10% of its money supply as cash and the United Kingdom circulates 4% of its entire money supply in cash. 10% of the total amount of money in existence is currently in physical form. Nigeria thus remains within the average of cash holders with 6.5% of the total amount of money in circulation, but behind in banking technology.
A financial company called PayPassage said earlier this year that 73% of Nigeria’s 59 million unbanked adults lacked the necessary identification documents, such as a BVN, NIN, utility bill, mobile phone, or other forms of identification, to create a tier-three bank account. If we consider how long it took the public to register for a National Identification Number, a Bank Verification Number, or even the just completed voter’s card registration operation, the data will raise eyebrows. Since many organizations will be impacted, six weeks is too short of a time for the new currency exchange unless the goal is to completely vaporize the wealth of individuals who missed the deadline.
According to the CBN Governor, the goal of the strategy is to seize control of the currency that is in use, which will reduce inflation. Not the meager 6.5% of cash in circulation, but a sizable chunk of the money supply should be the focus of the policy. Inflation is said to occur when a country’s money supply expands more quickly than its capacity to create goods and services. Unless further measures are taken to boost economic activity that will expand faster than the money supply, the inflation rate will even be higher.
It won’t be simple to accomplish given the low average currency in circulation and the high percentage of the population who are unable to accept cashless technologies. Money in circulation is necessary for the economy, particularly in a nation like Nigeria. Since it will take time for businesses to shift away from utilizing cash, the CBN will need to issue N3.2 trillion in cash to prevent economic activity from slowing down.
The CBN, like the eNaira, did not do enough research to limit the potential effects. The planned effects might not materialize, which would worsen the economy. This prognosis will undoubtedly be viewed as inaccurate, just like all other economic forecasts and models. However, a real-world examination can also aid in decision-making. If the results differ from what was projected, we can use this as a foundation to examine why.
The issue with Nigeria’s program is that a short-term objective is being pursued at the expense of the vulnerable general populace. Some believe that Buhari was trying to identify politicians who will commit voter fraud in the 2023 elections by implying that they were receiving illegal income. Does he believe they won’t adjust their plans if this is true? The susceptible groups will see their money disappear due to unforeseen causes, while the targeted groups may decide to keep other currencies or assets to dodge the policy. This includes the money carried by the diaspora, which can end up being a useless piece of paper for those unable to exchange it.
The modified Money Laundering (Prevention and Prohibition) Act of 2022 ought to be adequate to regulate big sums of money transactions if the government were effective. According to the Act, neither individuals nor businesses are allowed to conduct cash transactions over N5 million or N10 million without using a financial institution. There is a maximum withdrawal amount from the CBN for both private persons and businesses. These laws can effectively target their intended audience without invoking public outcry in their political conflict.
People must keep challenging the time and the manner of implementation of the policy since it is undemocratic and autocratic.
