Intending to create the impression of responsiveness, the Central Bank of Nigeria (CBN) bowed to public pressure on Sunday by extending the January 31 deadline for turning in old naira banknotes. CBN Governor Godwin Emefiele announced that President Major General Muhammadu Buhari (retd.) consented to this extension, rescheduling the deadline by ten days to February 10, with an additional grace period of seven days. By deferring to the President, Emefiele reinforces the perception that the CBN lacks independence. Despite this rescheduling, significant public mistrust remains regarding Emefiele’s policy to redesign the N200, N500, and N1,000 banknotes within a four-month timeframe. The extensive queues outside banking halls and the near-empty ATMs across the country in recent weeks paint a picture of chaos. As of last week, banks were still distributing old notes at their counters, and on Monday, only a handful of ATMs dispensed new notes. While genuine customers express their frustrations, a viral video showing people spraying the new notes at a party has further deepened the public’s perception of inefficiency within the CBN and security agencies. In simple terms, the new notes are scarce, and the CBN’s insistence on their availability lacks credibility.
A recent poll by NOI Poll, conducted starting January 9, revealed that over 40 percent of adult Nigerians had not seen the new notes since their introduction in mid-December. Additionally, Nigerians are being exploited by Point of Sale (PoS) operators, who charge as much as N200 to withdraw N1,000. This policy is compounding the suffering of the masses. The chaos began in December when business owners started rejecting old notes, prompting the CBN to assert that new notes were available at banks—a claim that is hard to believe given the lack of availability in ATMs. The flawed implementation of this policy, particularly with the short timeframe for its realization, has led to organized confusion. Reports have emerged of customers threatening physical violence against bank officials due to their inability to access cash. Furthermore, unscrupulous bank officials are allegedly exploiting the situation by selling new notes to politicians at a premium, undermining the policy’s original intent to prevent the use of money for vote-buying and election influence. Emefiele’s threats to sanction banks for sabotaging the policy appear to be empty, highlighting the need for the CBN to follow through on its commitments.
In rural areas, where financial exclusion is prevalent, the deadline could have devastating consequences for livelihoods. The World Bank warned in December that the timing and short transition period of the policy could negatively impact small and medium-sized businesses and the poor, affecting an estimated 133 million people. The NGO Inclusion for All Initiative reported that 54.4 percent of the rural population might lose their savings due to this policy. Doubts about the policy’s effectiveness were raised last October when Emefiele first introduced it. His primary objectives include combating kidnapping-for-ransom and curbing inflation, which reached 21.47 percent in November before slightly decreasing to 21.34 percent in December. The policy also aims to reduce counterfeiting and remove worn banknotes from circulation. In Nigeria, kidnapping has evolved into a multibillion-naira industry, with reports indicating that kidnappers collected over N6 billion in ransom following the abduction of passengers on the Kaduna-Abuja train last March. Any sensible policy aimed at addressing this issue is welcome.
The CBN seeks to recover the N2.73 trillion that is outside the banking system. As of October, the total currency in circulation was reported to be N3.23 trillion, with only N500 billion traceable within the banking system, indicating a significant gap. Emefiele stated that since the program’s commencement, approximately N1.9 trillion has been collected, leaving around N900 billion unaccounted for. However, the informal sector, which is crucial to Nigeria’s economy, accounts for 57.7 percent of GDP, according to London-based World Economics. World Bank data indicates that 80.4 percent of all employment in Nigeria is within this sector. Unfortunately, the economy is deteriorating; Moody’s, a global credit rating agency, downgraded Nigeria from (P)Caa1 to Caaa1 (junk) for the second time in three months, marking the country’s lowest rating since 2006. Given these circumstances, the policy, which prioritizes cashless transactions over cash, appears hasty and is likely to further constrain the economy, especially since the informal sector remains heavily reliant on cash.
While the cashless policy has its merits, it is still evolving. Nigeria’s current internet infrastructure is insufficient to support the robust online economy that the CBN envisions. Many Nigerians are losing money and time due to incomplete ATM transactions and being debited for failed transfers, even within the same bank. Therefore, the implementation of the cashless policy should occur in phases. Lessons from other countries support the argument that the ten-day extension is still too short. For instance, the Bangko Sentral ng Pilipinas allowed a one-year timeline to fully implement its redesign of the P1,000 currency from paper to polymer in April 2022. Similarly, the Bank of England recently announced a timeline for the circulation of its redesigned banknotes featuring King Charles III, set for mid-2024. There are no compelling arguments against these timelines, suggesting that Emefiele should adopt a more pragmatic approach to the new naira policy. The old and new notes should be recognized as legal tender concurrently for an extended period. In collaboration with security agencies, the CBN should take decisive action against those abusing the naira, ensure the availability of banknotes to banks, impose severe sanctions on banks that hoard currency, and utilize technology to track the distribution of new banknotes.
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