Merits and Demerits of Redesigning the New Naira Note by Federal Government
Introduction
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 percent currently outside the banking system back to the economy. The CBN governor, Godwin Emefiele, said that for the purpose of the transition from existing to new notes, bank charges for cash deposits had been suspended with immediate effect. He added that no bank customer should bear any charges for cash returned/paid into their accounts.
Emefiele explained, “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 N200, N500, and N1,000 levels.
Over time, Nigeria has experienced the introduction and circulation of different units of currency in response to two factors, the prevailing political and economic conditions. However, the former factor appears to have always weighed higher Overall money supply in Nigeria’s economy stands at ₦45 trillion, of which only seven percent (₦3.2 trillion) is in cash.
In other words, Nigerians are increasingly shunning cash for electronic settlements – the value of instant payment electronic transactions was ₦32.84 trillion in September 2022 alone, according to the Nigerian Interbank Settlement System (NIBSS). Year-to-date, the value of electronic transmissions stands at ₦271.5 trillion. The value of point-of-sale (POS) transactions for the first nine months of 2022 (₦6.05 trillion) has almost outpaced the total value for all of 2021 (₦6.4 trillion).
MERITS OF REDESIGNING THE NEW NAIRA NOTE BY THE FEDERAL GOVERNMENT
- the new noted will help to 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.
- With the new Naira notes, most tattered naira notes currency pushed into the system would be eliminated. At the same time, 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.
- Equally, 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 much money back to the system could upset some of their plans.
DEMERITS OF REDESIGNING THE NEW NAIRA NOTE BY THE FEDERAL GOVERNMENT
- one of the disadvantages is that people who are holding huge amounts of cash outside the banking system for nefarious reasons will go to the parallel forex market to buy hard currency, putting further downward pressure on the value of the Naira as too much Naira will be chasing too few dollars.
- 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.
- 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.
- Rural dwellers factor: It is feared that rural dwellers who live far from where banking services are available would experience hardship dumping the old notes, as well as, initially, obtaining the new ones.
- Fear of persistent inflation: the step would solve inflation, “because there also are other major reasons for inflation such as the forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on food price inflation.
- Both the CBN and the banks will face logistic challenges in distributing the new notes across the country with the rate of crime in the 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.
Merits and Demerits of Redesigning the New Naira Note by Federal Government
CONCLUSION
In conclusion, 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. Finally, 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.
References
Central Bank of Nigeria, CBN Circular on Project CURE, www.cenbank.org.ng
Chukwu, D.O. (2022), ‘Trends and Changes in the Nigerian Currency System, Colonial Period – 2022
https://www.thisdaylive.com/index.php/2022/10/31/benefits-of-planned-naira-redesign/