The redesign of the Nigerian currency by the Central Bank of Nigeria is raising fundamental questions on the domain and objectives of monetary policy. This is coming against the background of the difficulties and challenges which ordinary Nigerians have experienced while cooperating with the bank. This discourse reviews the implementation of the currency redesign within the context of the CBN Act and the overall imperative for a sound financial system.
S.2 of the CBN Act, 2007 states that the principal objects of the bank shall be to – (a) ensure monetary and price stability; (b) issue legal tender currency in Nigeria; (c) maintain external reserves to safeguard the international value of the legal tender currency; (d) promote a sound financial system in Nigeria; and (e) act as banker and provide economic and financial advice to the Federal Government. By S.18 of the Act, the bank is empowered to (a) arrange for the printing of currency notes and the minting of coins; (b) issue, re-issue and exchange currency notes and coins at the bank’s offices and at such agencies as it may, from time to time, establish or appoint.
The bank also has a developmental banking role as envisaged in S.31 of the Act. This developmental banking role is for the purpose of promoting the development of money or capital markets in Nigeria or of stimulating financial or economic development so however that in any such case, the total value of the holdings of shares or, as the case may be, debentures to which this section applies shall not at any time exceed ten times the aggregate of the bank’s paid-up capital and the general reserve fund of the bank.
Furthermore, the bank in S.32 has omnibus incidental powers, subject as is expressly provided in the Act generally to conduct business as a bank, and do all such things as are incidental to or consequential upon the exercise of its power or the discharge of its duties under this Act.
These objectives, functions and powers do not suggest that the bank is set up as an alternative government that solves all Nigerian challenges within the street sense of money solving all challenges. But the CBN seems to be proceeding with this street sense. When the airlines were down, the bank pumped money; when the Federal Government thought we need to increase local food production, the bank responded with cash that was disbursed outside the bureaucracy of the Ministry of Agriculture which houses the technical skills and overall mandate for food production. Back to the currency redesign.
Essentially, the currency redesign and re-issue exercise comes under the broad powers of the bank to issue legal tender, re-issue and exchange currency notes and coins. In redesigning the currency and issuing the legal tender, it appears the Act envisages that the CBN should do so within the context of satisfying the other monetary policy objectives to wit; ensuring monetary and price stability and promoting a sound financial system in Nigeria. It will be recalled that the bank requested Nigerians to pay in the old currency to money deposit banks so that they would eventually get new notes when they need their money. This is a routine exercise that should be done seamlessly and without much noise. It does not require a high level of intelligence for the bank to print new money or for Nigerians to pay in old notes with the expectation of getting new notes.
But it was expected that for the bank to successfully redesign the currency while meeting other objectives and without exposing citizens to hardship, it would have done some level of research and surveys to understand the key issue and challenges as well as undertake simulations across selected geographies and population groups before selecting the appropriate logistics arrangements for the redesign, deployment of new notes and general access by the populace. This would have also informed the timeframe for the exercise. Evidently, from the experience of Nigerians so far, the bank through its leadership pronounced the policy without thinking it through and was more interested in its dictatorial directions, with a “no going back” mindset even if the heavens are falling.
Furthermore, it appears that the street sense of money solving all challenges played a key role in the formulation and implementation of this policy. This led to a lack of strategic focus and took the attention of the bank away from the key monetary policy issues. Several justifications have emanated from the bank, which are not part of the monetary policy remit of the bank. These include inter alia fighting terrorism, money laundering, vote buying by politicians as we move towards the 2023 elections. Strictly speaking, these objectives stated by the bank in the currency redesign are not part of monetary policy provisions of the Act. The foregoing challenges are linked to agencies that have the primary mandate of fighting them. Terrorism and money laundering should be handled by law enforcement agencies and Nigeria has established a plethora of these agencies. Vote buying should be within the remit of the electoral umpire, the Independent National Electoral Commission. This submission is not intended to deny the need for inter-agency collaboration where the bank should have intervened at the invitation of the lead agencies to deploy its functions and powers to assist in fighting these crimes. But the bank cannot be the lead agency in these interventions. Against the background of the foregoing scenario, the bank operating as a one size fits all intervener may be scratching the surface in non-monetary policy objectives by failing in its core mandate. This is exactly where we are.
If the bank had strictly limited itself to redesigning and printing new currency notes and phasing them into circulation while gradually withdrawing the old ones, the evident challenges would not have arisen. Today, we have a situation where Nigerians have paid in the old notes but the bank failed, refused and neglected to supply sufficient quantity of new notes to the money deposit banks for disbursement to depositors. People are begging and crying for their hard-earned money, for which no one has accused them of any crime in its acquisition. The online money transfer mechanisms are overwhelmed while the bank keeps lying that it had supplied enough money to the money deposit banks.
A picture of a party where attendees sprayed money became evidence of money deposit banks diverting money to the rich and upwardly mobile in a corrupt scheme to sabotage the bank. But Nigerians forget that spraying money at parties did not start today and has been part of our party culture. It was even outlawed in the CBN Act of 2007, meaning that this practice has been around with us over the years. And we have not been told that the persons spraying the money acquired it illegally. With so much poverty, hardship, and ignorance, it is easy for many Nigerians to find scapegoats. Even the anti-corruption agencies whose duty it is to fight money laundering and terrorism had ceded the lead this time around to the bank. They have deployed at the instance of the bank and are chasing imaginary enemies of the state.
In the final analysis, the solution to the current impasse is for the bank to make more money available. The allegations of diversion or not making the money available to Nigerians can only arise due to scarcity of the new money. No one was hoarding the old notes that were everywhere.
