The Central Bank of Nigeria has decided to redesign the naira, citing the enormous volume of liquid cash outside the banking system as the primary rationale. This policy would be effective if certain boxes are checked; unfortunately, they are not. The Naira traded at N850/$ and N1000/£ recently, a new zenith for a dislocation of the Naira. The Naira has not only lost its value against major currencies, it has suffered a major beat down from inflation. With the double whammy effect on the Naira, the Central Bank would be better off designing a glide path for monetary policy arsenals to wrestle inflation. To make matters worse, the ministry of finance, which should be coordinating with other ministries to drive economic productivity, that could in turn resuscitate the ailing Naira, is busy absolving themselves of CBN’s move to redesign the currency.
The Naira has really been through a lot; from devaluation to depreciation to sticky inflation. In all of these, it’s ability to thrive has been excruciatingly reduced because the economy that is supposed to support its float has a strong demand for Dollar and other foreign currencies. Even if the redesign of the currency would yield any benefit, it would be minimal at best. If the CBN is concerned about people holding Naira at home, why not explore measures like incentives that promote savings in deposit money banks, monitoring excess cash withdrawals and deposits in banks especially by politically exposed persons and ultra-high net worth individuals, and financing academic research that could identify loopholes for currency liquidity and how to close them. Without identifying the cause of the problem, the redesigned Naira will likely be filtered through the same loopholes.
One of the reasons I am curious about the redesign of the Naira is – why now? Few months to the general election that would see the present administration relinquish power to a new administration; and the CBN decides to redesign the currency now. The timing is wrong and there must be some sinister motive. This reminds me of an event that happened few years ago. The CBN recalled old, dirty notes from the banks, and instead of some staff in one of the local offices of the Central Bank to destroy these notes, they siphoned it and recycled it back to the banking system. Redesigning the Naira is an opportunity for intelligent fraud in banks and among politicians. With the elections underway, the old currency can be ploughed back to finance election campaigns, which would go unnoticed because the velocity of those old currency will be low.
With all the challenges in Nigeria – insecurity, unstable academic calendar in universities, crude oil theft, suffocating fuel subsidy regime, flooding, among a million others, wasting insufficient resources to print new currency notes is just not the way to go. The U.S. Dollar bill, as we have it today, debuted in 1963. The Great Britain Pounds will be redesigned, but that is because of the demise of the queen. Thankfully, Nigeria currencies have the faces of people who have passed on to glory, so there really is no need to redesign the currency.
If Naira could speak, it would not request a redesign from the CBN. The Nigerian economy is far from its potential output; what the economy needs now is full-blown force on harnessing local potentials to drive production. The most sustainable mechanism to foster currency appreciation and stability is to earn foreign exchange in torrents, which can only be achieved through a massive export drive. This is only possible through intensive domestic production of high-value exports, both goods and services. The Chinese economy holds lessons for the Nigerian government. Even though the Chinese government is labelled a currency manipulator, we must salute their production prowess, which has earned the Chinese government the right, even if not the morality, to control their exchange rate.
Written by Michael Ogunremi
Picture Credit – istock images/unsplash
Great write up ??