THE CBN NAIRA REDESIGN POLICY AND ITS EFFECT ON THE NIGERIAN ECONOMY Zafirah Ohunene Adam Ahmadu Bello University U19HP1128 In 2022, the Central Bank of Nigeria under President Muhammadu Buhari's led administration expressed the decision to redesign the naira as a statutory responsibility and a way to curb the increased circulation of counterfeit notes in the country. The CBN governor, Mr Godwin Emefiele expressed that the approval for the redesign was granted by the president of the country . The reasons to be the fighting of corruption, terrorism, kidnapping and other unlawful practices. He said the higher naira denominations which include ₦200, ₦500 and ₦1,000 notes are mostly used by the perpetrators of the aforementioned acts. The deadline to exchange banknotes was fixed to 10th of February 2023 originally from 15th of December when it ceased to be legal tender. Ideally, currency redesigns increase a currency’s security by helping nations keep counterfeiting to a minimum and stay one step ahead of threats. Additionally, the redesign was anticipated to boost the economy, lower cash management costs, advance financial inclusion, and improve the government’s ability to monitor the money supply. What was not expected was the enormous negative impact that preceded the redesign of naira. "Nigeria has in the past, had reasons to change, redesign and redenominate its currency; but, never, in the annals of the nation’s political history, has such an exercise brought so much hardship, confusion, apprehension, rancour and despondency, like is currently being witnessed and experienced. Perceptible disobedience to the order of the Supreme Court, pitching states against the Federal Government, and gradually descending to the masses against the Federal Government, resulting in unimaginable angst, expressed in wanton destruction of properties of financial institutions, and even loss of lives." An excerpt from a report by This Day Live. The poor implementation of the naira redesign policy has had a great toll on the economy and the people. Consequently, the scarcity of the new naira notes has worsened the living condition of Nigerians. Beyond this, Nigerians are grappling with epileptic power supply and rising inflation. Zafirah Ohunene Adam Ahmadu Bello University U19HP1128 Small, medium and large businesses, in both formal and informal sectors of the economy, are feeling the pinch of the shortage of the new banknotes and as a result a lot of businesses, local and struggling have folded leading to loss of their source of livelihood. The crippling effect of naira redesign policy has undermined the trade and agricultural sub sector. It also had a knock-on effect on other critical sectors of the economy, especially the manufacturing value chain and the service's sector. With the scarcity of the new naira notes, the trading end of the chain has been greatly disrupted by the currency swap crisis. The trade sector, for instance, contributes about 14 percent of the nation’s Gross Domestic Product (GDP), which is valued at 35 Trillion. The agricultural sector, which contributes about 25 percent to the GDP is valued at an estimated N62 trillion. Statistics have it recorded that about 20 percent drop in sales in consumer goods and 30 percent for the manufacturing sector since the scarcity of the new naira notes and the shortage of fuel started. Another sector which the naira redesign brutally affected is transportation. Due to limited availability and strain in the circulation of new notes, a large number of the general public face limitations to easy access of commercial transport Though the CBN says that its cashless policy is not designed to starve Nigerians of the new banknotes, but to encourage cashless transactions, the toll on the economy and livelihoods has become unbearable. The reported protests in some state capitals due to the cash crunch prompted some banks to close some of their branches. There have been shortages of the new bank notes at, necessitating some Nigerians to wait in long lines or sleep on the sidewalk waiting for ATMs to be reloaded. Nigeria's central bank expressed the scarcity of the currency is due to the high volume of the naira kept outside the banking system and attributed to be hoarded by politicians. However, despite the various disadvantages, the naira redesign has had some favourable impact. Analysts claim that redesigning the naira has decreased inflammatory pressure and suppressed insecurities in Nigeria. Will diminish the money stock and, as a result, slow the long-term course of inflation by reducing the amount of currency held outside Zafirah Ohunene Adam Ahmadu Bello University U19HP1128 of banks. Interest rate reductions may result from the ensuing deflationary pressure, which will stimulate economic activity in the short to medium term, increase aggregate demand, and improve output growth lists contend that redesigning the naira, which was implemented close to the 2023 general elections, may have lessened the inclination of politicians to buy votes. As the world becomes increasingly reliant on technology, the traditional way of doing business is no longer feasible. A cashless society offers a more convenient and secure alternative to physical cash. The benefits are numerous, from faster transactions to reduced costs and risks associated with physical currency, such as theft and fraud. With the Cashless Policy, the country is on a path to become a cash-lite economy, and this presents an unprecedented opportunity for digital payment providers. Reports of armed and highway robberies, kidnappings reduced drastically in different parts of Nigeria. Many online and mobile banking apps and platforms hitherto left grossly unutilized or underutilized are now being put to maximum use. In that way, the capacity and effectiveness of Nigerian Banks to handle or sustain online transactions on their respective platforms are now being put to test. This would lead each bank to undertake massive upgrades and strengthen their respective platforms with a view to serving the public better. It severs the habit of stockpiling unnecessarily huge amount of cash in vaults at home, in the offices or in some other places outside banks, and effectively guarantee the public to open and operate accounts in banks and to deposit their money in the latter. This is safer and more in tune with global best practices and prevailing 21st-century standards. In this way, the risk of home robbery is eliminated. There are many other benefits of the Naira Redesign, if the polices are effectively managed to ensure the huge benefits are effectively harnessed while any unbearable side effects on the part of Nigerians are reduced. Everything good usually comes with some level of pain and sacrifice on the part of the people for whom it benefits. The unasked question presently is: why has an action (currency redesign) of such heightened promises as the latter failed woefully despite the ambition and hope it held? Zafirah Ohunene Adam Ahmadu Bello University U19HP1128 After analysis and research I deem my results fit to be shared. The reason for the collapse of the new naira implementation is as follows: Cost-benefit: An egregious error committed by the central bank was its violation of the principle of cost-benefit analysis. This is a simple rule in economics that implores policy makers to undertake an initiative only when the benefits exceed the costs. One should ask: What were the benefits of introducing the policy? What were the potential costs at the time of implementation? The central bank justified the redesign policy as follows: to rein in counterfeiting, promote a cashless economic reduce the large quantity of dirty notes circulating in the economy, discourage hoarding, curb widespread crimes. And the cost? If indeed the central bank considered the cost, it obviously underestimated it. How would anyone ignore the large-scale disruptions in the economy and loss of productivity that the policy caused, not to speak of the stress and anxiety inflicted on Nigerians? Communication: Of all the pitfalls that doomed the currency redesign policy, at least as conceived originally, the lack of effective communication about the overarching goals and modus operandi of the exercise was the most devastating. Nigeria’s central bank threw a basic element of strategic planning and communication to the winds when it failed woefully to communicate and educate the public about expectations, prior to launching the policy. According to strategic planners, a major policy initiative that is not well communicated, from the top of the strategy planning pyramid to the bottom, is bound to fail. The central bank finally began rolling out a communication plan by late December 2022, but this was too little too late. By then Nigerians had already characterised the policy as decidedly punitive. The narrative that had gained ground was that the change was designed to curtail the ability of politicians to buy votes during the 2023 elections. This inevitably raised the question of why millions of Nigerians should suffer because of politicians? Inappropriate timeframe: The timeframe for implementation was unrealistic and impractical. By setting a very short timeframe for phasing out the old notes, the Central Bank of Nigeria appeared to have adopted textbook assumptions about how the Nigerian banking system works. Anyone who has been to a typical commercial bank in Nigeria would know it would have been impossible for the banks to undertake the monumental Zafirah Ohunene Adam Ahmadu Bello University U19HP1128 task of collecting old notes and dispensing the new ones within the one-and-a-half month window originally allowed by the central bank. Overcrowding, chaos, excruciatingly slow service and unnecessary bureaucratic red tape are quite common during normal banking hours. It is not uncommon to observe people with “connection” circumvent queues and obtain preferential access to bank staff. The central bank should have considered this fact and allowed for a longer timeframe for implementation. Conflicting goals and lack of prioritisation: Policy targeting is a major precondition for success. The focus on one unambiguous objective in past redesign policies enabled the central bank to conduct a seamless and less dramatic exercise. The current redesign policy had too many goals, and it was unclear which one was the target goal. With too many goals, the danger is that an instrument designed for one goal may undermine another goal. But this inflicted unintended hardships on innocent Nigerians who simply wanted to access their hard-earned money. The central bank should have focused on one major goal. If the goal was to phase out old notes, as the bank is statutorily mandated to do, then the old and new notes could have circulated alongside each other until the old notes were phased out. Economic headwinds: It is very difficult to implement a major policy initiative that negatively affects people during a period of macroeconomic instability. The central bank policy came at a bad time. Nigeria’s economy is in shambles, with a 22% inflation rate, 33% unemployment rate – 43% among young Nigerians – and a growth rate of 3%. These economic challenges have been compounded by a 17.5% interest rate, steep declines in the value of the Naira, and widespread poverty. Nigerians’ tolerance for economic shocks was already at its limit when the redesign policy was launched. The policy and the confusion that accompanied it tipped them over the edge. The challenge of credibility: The central bank needs to reestablish its credibility as the “people’s bank,” to reverse a self-inflicted image of an organisation that’s partisan. The bank has a fiduciary responsibility of catering to the interests of its main “shareholder,” the Nigerian people. But the perception is that the bank lacks independence. To effectively discharge its statutory duties, the Central Bank of Nigeria should initiate a process of re-asserting its independence and regaining the people’s trust and confidence. Zafirah Ohunene Adam Ahmadu Bello University U19HP1128 6 Zafirah Ohunene Adam Ahmadu Bello University U19HP1128 Bibliography ● https://en.m.wikipedia.org/wiki/Nigerian_naira ● Stephen Onyeiwu, (March 14, 2023), Nigeria's Central Bank made mistakes that doomed the country’s currency redesign, Allegheny College ● Peter Daniel Onimisi, (March 06, 2023), Currency Redesign: What Implication Does It Have For Socio-economic Development In Nigeria?, Association of African Development Finance Institutions ● Sylvester Udemezue, ( February 27, 2023), Benefits Of Naira Redesign, Cash Limit And Swap Policies, The Guardian Newspaper ● Ebun Adegboruwa, SAN Chief J.B. Daudu, SAN,Chief Anthony Aikhunegbe Malik, SAN, Dr Monday Ubani, Dr Sam Amadi, Kede Aihie and Jide Ojo, (February 21, 2023), Politics of Naira Redesign and Its Attendant Implications, This Daily Live ● Ademola Giwa, (February 25, 2023), Nigeria’s Cashless Policy: A Significant Opportunity For Growth, Business Day News
