WHY WE MUST SUPPORT CBN IN REDESIGNING THE NAIRA NOTES – Chairman, GSFRC
♤ One of the main objects of the CBN is to ensure monetary and price stability conducive to economic growth.
♤ The CBN has the power to reissue and redesign the local currency by its enabling law.
♤ The Bank need not consult the FMF as an autonomous, independent monetary authority in discharging its function same way the bank isn’t involved in the FMF budget and fiscal matters apart from the statutory function of banker and financial adviser to the government.
♤ The CBN can only influence economic and financial activities through its instruments of monetary policy.
♤ CBN actions (discretionary power) affect the cost, value, and level of interest rates which act as a signal to market participants including you and me.
♤ CBN decisions (MPC) influence the level of reserves of the banking system, the interest rate, and the level of liquidity in the economy.
♤ *If over 80% of the currency in circulation is outside banks, it, therefore, means that the MPC decision will only influence part of the 20% of the money supply in commercial bank vaults.*
♤ The use of CRR, MPR, and LR would be impotent in controlling the money supply, hence, the level of inflation and exchange rate of the naira.
♤ *The objective of the redesign is to bring currency outside banks into the banking system so that the CBN can ensure monetary and exchange rates stability.*
♤ The time frame within which all legitimate business/economic agents can re-channel their resources to the banking system is adequate. Any extension can lead to policy distortions with attendant adverse consequences.
♤ Another reason for the redesign is to address the high number of counterfeit in higher denominations notes particularly the N500 and N1000 which estimates put it around 30% – 40% of the notes.
♤ The measures are likely going to render some notes useless if such funds turn out to be products of money laundering, terrorism financing, or ramson payments if the owners fail to inject the money back into the banking system.
♤ *Overall, the intended goals of the policy are to reduce demand pressure in the forex market and stabilize commodity prices for sustainable economic growth.*
♤ However, every policy has unintended consequences and this policy cannot be an exception if economic agents fail to comply in good time which may likely lead to last hour rush.
♤ *However, the good news is that there’s full information in the economy for economic agents to act rationally.*
♤ While the flip side is the increased demand pressure in the forex market which is expected as economic agents and currency hoarders struggle to integrate the money into the system. This is called temporary shock (as we can see the naira depreciating further) but this is expected to fizzle out when the funds return to the banking system.
♤ While many commentators try to link this policy with what happened in the early 1980s, the economic environment differs significantly from every measured yardstick.
♤ *The number of banking public, number of bank accounts, number of banking products such as ATM cards, Debit and Credit cards, PoS terminals, Internet and web banking channels, etc has significantly improved over the last two decades.*
♤ Rapid growth in financial inclusion and the use of banking products has grown at astronomical speed.
♤ *The policy will not affect the poor and vulnerable significantly as envisaged in some quarters as poor Nigerians who lived below the poverty line stood at 95.1 million and they have to go out and earn a living daily before they spend. Therefore, day workers will always earn the redesigned currencies as they spend the next day.*
♤ The unbanked living in the villages and who engage in buying and selling usually supply these goods to their customers in the southern part of the country who paid them via the accounts of their children or wards. But advisably, they should open their accounts as soon as practically possible and begin to drop their money in bits.
*Recommended Suggestions to all Nigerians*
♤ Our people should begin to drop their money in banks with immediate effect, particularly those with millions or billions outside the banking system.
♤ Let’s all begin to drop bit by bit till December 15, 2022, since the objective of the CBN is to have firm control of the money supply.
♤ As responsible and patriotic Nigerians, we must do everything possible to encourage our people to start early as no serious businessman (formal or informal) can keep a billion naira cash at home.
♤ As the deadline approaches, we should minimize selling in the old currency to avert the risk of conversion.
♤ In our inventory management, we need to know when to sell and get paid in the old notes or when to hold on for a while as the dateline approaches to avoid the risk of exchanging with the redesigned notes as pressure to exchange increases in the last minutes rush.
This brief is from Abubakar Inuwa Tata, Chairman, Gombe State Fiscal Responsibility Commission
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