Breaking

As CBN plans new naira notes: EFCC hails apex bank’s move to tackle inflationary trends, reveals clampdown plans 

CBN

Governor Central Bank of Nigeria (CBN) Godwin Emefiele has announced the apex bank’s plan to redesign the Naira notes to foil counterfeiting of the nation’s currencies.

Emefiele, who announced this Wednesday at a press briefing in Abuja, said the exercise would affect the highest denominations of  N100, N200, N500 and N1000 notes, saying  the action was taken to  control the currency in circulation.

He said the bulk of the nation’s currency notes were outside bank vaults and that the CBN would not allow the situation to continue.

Football Highlights

Although the announcement has continued to generate mixed reactions, the CBN, however, said the new notes would be released for public use December 15, 2022.

He also stated that the old notes and the new notes would circulate simultaneously until January 31, 2023 when the old notes would cease to be legal tender.

Governor Emefiele said: “We have called this gathering to inform relevant stakeholders and the general public of persisting concerns we are facing with the management of our current series of banknotes, and currency in circulation, particularly those outside the banking system in Nigeria.

“As you all may be aware, currency management is a key function of the Central Bank of Nigeria, as enshrined in Section 2 (b) of the CBN Act 2007. Indeed, the integrity of a local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy are some of the hallmarks of a great Central Bank.

“In recent times, however, currency management has faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country.

“These challenges primarily include: Significant hoarding of banknotes by members of the public, with statistics showing that over 80 percent of currency in circulation are outside the vaults of commercial banks; 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. Indeed, recent development in photographic technology and advancements in printing devices have made counterfeiting relatively easier.

“In recent years, the CBN has recorded significantly higher rates of counterfeiting especially at the higher denominations of N500 and N1,000 banknotes. Although global best practice is for central banks to redesign, produce and circulate new local legal tender every 5–8 years, the Naira has not been redesigned in the last 20 years.

“On the basis of these trends, problems, and facts, and in line with Sections 19, Subsections a and b of the CBN Act 2007, the Management of the CBN sought and obtained the approval of President Muhammadu Buhari to redesign, produce, and circulate new series of banknotes at N100, N200, N500, and N1,000 levels.

“In line with this approval, we have 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. Accordingly, all Deposit Money Banks currently holding the existing denominations of the currency may begin returning these notes back to the CBN effective immediately.

“The newly designed currency will be released to the banks in the order of First-come-Firstserve basis. Customers of banks are enjoined to begin paying into their bank accounts the existing currency to enable them withdraw the new banknotes once circulation begins in mid-December 2022.

“All banks are therefore expected to keep open, their currency processing centers from Monday to Saturday so as to accommodate all cash that will be returned by their customers.  For the purpose of this transition from existing to new notes, bank charges for cash deposits are hereby suspended with immediate effect.

“Therefore, DMBs are to note that no bank customer shall bear any charges for cash returned/paid into their accounts. Members of the public are to please note that the present notes remain legal tender and should not be rejected as a means of exchange for purchase of goods and services.

“We would like to use this opportunity to reassure the general public that the CBN would continue to monitor both the financial system in particular, and the economy in general, and always act in good faith for the achievement of the Bank’s objectives and the betterment of the country.”

EFCC hails decision

In his reaction, Executive Chairman Economic and Financial Crimes Commission (EFCC) Abdulrasheed Bawa described the move by the apex bank as “a well-considered and timely response” to the challenges of currency management which had negatively impacted the country’s monetary policy and security imperatives.

“The EFCC, the CBN and some other regulators in the financial sector have worked closely in the recent past to determine how best to stabilize the country’s monetary policy environment. It is heart-warming that the CBN has demonstrated courage in taking this bold decision which I believe will bring sanity to the currency management situation in Nigeria,” he said.

He called on operators in the Nigerian financial services sector, especially deposit money banks and bureau de change operators to work within the guidelines provided by the CBN to ensure seamless withdrawal of the old currency.

Bawa, however, warned that EFCC would “monitor the process to ensure that unscrupulous players and currency speculators and their cohorts among the BDCs do not undermine the exercise. He also charged banks to be alive to their reporting obligations and not assist unscrupulous customers in laundering suspected proceeds of crimes through their system.”

The EFCC boss further said “the objectives which the CBN seeks to achieve with the redesign and reissue of the higher denomination Naira notes, are in tandem with the objectives of the Money Laundering Prevention Prohibition Act 2022, which criminalizes the conduct of cash transactions above a certain threshold.”

According to Section 2 (1) of the Money Laundering Act 2022 “No person or body corporate shall, except in a transaction through a financial institution, make or accept cash payment of a sum exceeding— (a) N5,000,000 or its equivalent, in the case of an individual ; or (b) N10,000,000 or its equivalent, in the case of a body corporate.”

Optimistic that the new currency measure would further boost Nigerians’ embrace of banking culture and encourage the acceptance of cashless transactions, the EFCC Chairman recalled that the commission had recently taken operational action against currency hoarders in major commercial cities of Nigeria.

“It is therefore pertinent to issue this stern warning to Bureau de Change operators to be wary of currency hoarders who would attempt to seize this opportunity to offload the currencies they had illegally stashed away.”

It’s beneficial, timely – Analysts

In another reaction, Professor of the Capital Market Uche Uwaleke said the decision by the CBN would  benefit the economy in the medium and long term. 

Uwaleke, who said this Tuesday in a chat with Blueprint, said the move by would not only crowd in the naira but also help reduce interest rate. 

He said: “I think the decision to replace some naira denominations with new ones will be positive for the economy in the medium to long term.

“First, although the measure does not amount to demonetization of big currency notes often carried out by Central Banks to curb black money and corruption, it will go a long way in ensuring that a lot of naira notes circulating outside the banks are crowded in.

“If it leads to large deposits in banks, it means the banks will have more money to lend which may reduce interest rates. I also think it may have the effect of reducing speculative attacks on the naira in the parallel market.”

Uwaleke, who is also the President of the Capital Market Academics, said the Financial Intelligence Unit should rise up to the occasion with a view to monitoring illegitimate transactions. 

He also called on the apex bank to extend the deadline for the as it was too short. 

“I expect that the Financial Intelligence Unit will be on the watch out for huge deposits as a way of monitoring illegitimate transactions.

“Despite the huge cost involved in changing currency notes, I think it’s time to sanitize the system especially now that electioneering activities have kicked off. However, I think the deadline of Jan 31 2023 is short in view of the number of naira denominations involved, from 100 to 1000. The CBN may consider extending it with time,” he said.

In a similar reaction, the CEO of SD&D Management Limited, Gabriel Idakolo, described the decision as very timely and relevant. 

Idakolo said while the move would help to fight cases of proceeds of crime in the financial system, it would further increase inflationary pressures on the economy. 

He said: “The reasons given for redesigning the Naira notes regarding efforts to trace ransom payments or curb counterfeiting may be germane but it’s attendant cost could further increase inflationary pressures on the economy.”

In the same vein, political economist, Adefolarin Olamilekan, told Blueprint that the CBN’s plans to roll out the redesigned naira note would restore the authenticity of the currency that had come under counterfeiting. 

Olamilekan added that after rolling out the policy, the apex bank should ban forex black marketers whom he described as part of the distortion in the economy. 

“Nevertheless, we consider this move as a stringent, monetarist stand that that to give the Naira a deep sense of, authenticity, security and conformity to latest global currency marked against counterfeit and illicit printing.  

“Nonetheless, l was expecting this new development to include a final ban on forex black marketers,” he said. 

Illias feels differently

However, a financial analyst Aliyu Ilias, said the redesigned naira notes by the CBN would be counter-productive. 

In the place of this, the apex bank should think of how to make the use of the coins acceptable by Nigerians.

“The change in the currency is going to be counter-productive for the economy, Nigeria should be thinking of having a single currency in West Africa to benefit from AFCTFTA.

“Moreso, CBN should be concerned about how the coin will be in use, most African countries are still using coins and this has an effect on inflation and economic growth.

“The reason for hoarding and counterfeiting is just a mere excuse for their laziness to make Naira more valuable,” he posited. 

Okolobia, Omorodion in further reactions

Also in separate reactions, a financial analyst, Mr Ifeanyi Okoloabia, described the plan as one in the right direction in line with best  global practices. 

He said, “the new arrangement represents an important step in an effort by the CBN to maintain the security of the local currency by staying ahead of today’s new technology that are becoming more sophisticated and accessible.

“With the printing of the new notes the apex bank will use the opportunity to improve the security of the notes and maintain its integrity thereby reducing every form of counterfeiting of the local notes in the country.”

Okoloabia said “in this era modern  technology, photographic technology and advancements in printing devices have made counterfeiting relatively easier, so redesigning printing new notes will go a long way to reduce fake currency which has been on the increase in the recent time.”

Also, Chief Operating Officer InvestData Consulting Limited Ambrose Omordion said, “the CBN wants to strategically mop up liquidity from the system to help curb spending and stem the high rising inflation until that time when the economy recovers from or reclaims it’s recent (pre-flood) production levels.”

“The CBN must have decided on this path to reduce the likely inflationary pressure and follow-up impact the recent low production levels of goods/commodities would have on the real sector amidst the recent flooding that has ravaged 11 states of the federation.

“The move is expected, as aggregate supply greatly lags aggregate demand which hitherto was already squeezed following in-country bottlenecks due to the problem of insecurity, low capex to Agriculture and related infrastructure, post covid-induced supply constrain and the global energy crisis exacerbated by the Russian-Ukrain war.

“With the recent flood outbreak now in the mix, money supply may have outpaced grown faster than real output further widening the demand-supply disequilibrium, hence the need for a contractionary monetary policy.

“Nigeria’s rising inflation is not just demand-pull but also cost-push driven, adding that while this policy might cushion the impact of pressure on the demand side, albeit temporarily, lower spending but it will likely not stem the pressure on cost because a drop in money supply often results to an increase in interest rate. 

“An upward pressure on rate effectively implies an increased margin on Cost of fund (borrowing cost) and by implication lower purchasing power.  So, this policy though necessary at this time, but may not really have much of an impact, particularly in the near term. I think the rise in inflationary peg may continue, driven by cost-push inputs on the food side while Upward pressure in the prices of goods will likely remain,” Omorodion said.  

Also in yet another reaction, Managing Director APT Securities and Fund Limited, Garba Kurfi said the decision would enable the apex bank put hidden money under control.

He said it is a good strategy to make all money kept inside bush by kidnappers useless.

“Apart from forcing all corrupt officers, politicians that stock money underground waiting for election campaign to bring it out, it will help to bring down counterfeit notes in the system.

“In the process, the pressure to change the new and old notes will  push many people to start rushing to buy anything available in the market and thereby indirectly increasing the prices of goods  in the process  to convert their money into assets which may accelerate  inflation  rate in the economy,” Kurfi said.

FG assures

In a related development, Minister of Finance, Budget and National Planning Dr. Zainab Ahmed has said the federal government had activated mechanisms to tackle the nation’s  growing inflation.

The minister said this Wednesday while appearing before the House of Representatives Committee on Finance for the 2022 budget performance and the 2023 budget defence.

The committee chairman, Hon. James Faleke, had asked the minister  on efforts by the government to arrest the growing inflation in the country which he said had become a concern to many Nigerians.

Responding, the minister said the Russian/Ukraine conflict and the decision of some central banks in the U.S. and Europe had affected fiscal activities in Nigeria.

She however disclosed that President Muhammadu Buhari had directed national food security council to brainstorm and make recommendations on the way forward.

“On inflation, it’s a very serious situation where Nigeria’s inflation is now 23%. The inflation in Nigeria has a number of components, one of them is imported inflation, occurrences in other countries also affects Nigeria. For example, the war in Ukraine and Russia has an impact on Nigeria in the sense that some of the inputs for food production are affected. 

“Also, the decisions taken by the central banks in USA, Europe on monetary tightening have also an impact on their own level of inflation that also affects our country. But in Nigeria, we also have food inflation, and because of the high cost of diesel, we find this showing up in food prices. So, when farmers produce their goods and they have to transport them to market, the increasing cost of transportation is impacting the food. What the central bank is doing is continuing to monitor inflation by money tightening and mopping up liquidity,” she said.

Giving a review of the 2022 budget performance earlier, the minister said N3.52 trillion was for debt service in the N17.32 budget, adding that the level of borrowing was N1.26 trillion ahead of July, 2022 target. 

According to her, in the 2022 budget, the government had a proposal of N6.1 trillion new borrowings, N3.5 trillion from domestic sources and N2.5 trillion from foreign sources.

But as of August, the minister said the federal government had borrowed N4.06 trillion from local sources, including the CBN.