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The Redesign of the Naira amidst National insecurity, crippling inflation and the 2023 presidential election
Business/Economy

The Redesign of the Naira amidst National insecurity, crippling inflation and the 2023 presidential election

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The biggest topic on the front burner in economic policy discourse in 2022, unexpectedly, is the abrupt decision by the Central Bank of Nigeria, CBN, to redesign the N200, N500 and N1000 notes. The public announcement came on October 26, 2022 by the CBN Governor, Godwin Emefiele, via a press release. The announcement came with mixed reactions from the public, many questioning the importance of such policy in a time when the Naira continues its daily plunging against the dollar and the country facing so many security threats.

In the press release, the CBN governor stated clearly the reasons and the need for this key monetary policy. We will look at some of those reasons, how they impact the economy and what it means for the general public. It is right to point out that currency management comes within the ambit of roles of the apex bank, CBN, as clearly stated in the section 2(b) of the CBN Act 2007. It is in their duty/rights to maintain the integrity and credibility of the currency.

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Reasons/Benefits of the Redesign

According to the CBN Governor, Godwin Emefiele, one of the reasons the CBN decided to redesign the bank notes was based on the disturbing fact that the currency had faced several challenges that had gotten not only bigger in scale but more sophisticated in practice. These challenges included significant hoarding of bank notes by members of the public, with statistics showing that over 80% of the currency in circulation was outside the banking sector, which is quite alarming. With the scheme, the central bank aims to take control of the money supply by mopping up all the cash from the economy, both within the vaults of the banks and in the hands of citizens. With the current inflation rate in the country at above 20%, this will serve as an unorthodox way of tightening the money supply. And this serves as a huge opportunity for the CBN to move away from physical cash in business transaction to a more cashless economy. This policy in large part will give the apex bank the opportunity to have full control of the volume of physical cash in the system.

The increasing sophistication in counterfeiting of the Naira is another reason for the redesign, which the CBN have promised to imprint more security features in the new currency, to help in mitigating and preventing the risks of counterfeit. According to the CBN annual report, a total of 67,265 pieces of counterfeited notes with a nominal value of N56.83millon was recorded in 2021. That is a lot of fake money in circulation threatening the credibility and integrity of the currency. Some of the secondary benefits hinted by the CBN governor was the fact that with the redesign, the ill-gotten cash hoarded by kidnappers, terrorists and politicians will be brought out or face becoming obsolete.

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In view of the prevailing level of security situation in the country, the CBN is convinced that the incidence of terrorism and kidnapping would be minimized, as access to large volume of money outside the banking system used as a source of funds for ransom payment will begin to dry up, the process being under the surveillance of both the CBN and the Economic and Financial Crimes Commission (EFCC). With the effect of this policy, terrorists will have to choose between the risks of being trapped while smuggling the huge amounts they have accumulated through ransom payment into the bank or see it become valueless.

Another key secondary effect of this new policy is the issue of vote buying. As Nigeria heads to the polls in 2023, the redesigning of the Naira will eliminate and address vote buying and the purchase of permanent voters’ cards in the 2023 elections. Vote buying over the years has always played a role in Nigeria’s polls, helping politicians that have created personal bank vault at home to sway voters with money. This policy will put politicians who have amassed huge financial war chests to prosecute the 2023 election in a tight hole, as all the old currencies are expected to back to the vaults by January 31, 2023 and with Section 2(1) of the Money laundering Act of 2022 which states “No person or body corporate shall, except in a transaction through a financial institution, make or accept a 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. This won’t rule out the whole practice overnight but it will definitely go a long way in mitigating it.

Restrictions and Regulations on Bank/Cash transaction.

In a circular issued by the CBN on December 6, 2022, it stated that with effect from January 9, 2023, the maximum over the counter cash withdrawal limits by individuals and corporate organizations per week, would be N100,000 and N500,000 respectively, adding that withdrawal above these limits would incur a processing fees of 5% and 10% respectively. It further stated that the maximum cash withdrawal per week via Automated Teller Machine (ATM), from January 9, would be N100,000 subject to a maximum of N20, 000 cash withdrawal per day. The decision saw a huge backlash from stakeholders involved and the public, who felt that this cash limit policy was out to make an already bad situation even worse. It sparked protests and lobbying among institutions that were involved, as they believed that the decision was taken without adequate consideration of the plight of the masses.

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In a recent circular dated December 21, 2022, the CBN’s Director of Banking Supervision, Haruna Mustafa, stated that the CBN had reviewed its pervious stand on the cash limits imposed earlier, with the maximum weekly limit for cash withdrawal across all channels by individuals and corporate organization being N500,000 and N5,000,000 respectively. The CBN stated also that the new development was a byproduct of the feedback it got from the stakeholders and general public.

Conclusion

The CBN took a very decisive step in redesigning the naira and the imposing of strict measures cash transactions and gave straightforward reasons as to why it is necessary. This shows their commitment to safeguarding the integrity of the local legal tender, the efficiency of its supply and the credibility it ought to offer.

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This monetary policy, like every other economic policy, can have the opposite of its intended purpose. It is early to judge if it is the right call or not. We can only be optimistic and hope the best intentions of the CBN and Federal government plays out right.


Disclaimer

Contents provided and/or opinions expressed here do not reflect the opinions of The Pacesetter Frontier Magazine or any employee thereof.

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