The Minister of Finance, Budget and National Planning, Zainab Ahmed, has kicked against the Central Bank of Nigeria’s plan to redesign naira notes.
Speaking at a budget defence session at the Senate on Friday, Ahmed said the apex bank did not consult her and other ministers before announcing the plan, noting that the project would produce negative economic consequences.
The CBN Governor, Godwin Emefiele, had on Wednesday announced that the bank would release re-designed naira notes by December 15, 2022.
Emefiele made the announcement during a special press briefing in Abuja where he gave reasons for the move.
The affected denominations are N100, N200, N500, and N1,000.
According to him, the move is targeted at controlling the currency in circulation as well as curbing counterfeit currencies and ransom payment to kidnappers and terrorists.
However, this has not gone down well with the Finance minister, who said the CBN did not consult her and other ministers before going to the media.
Ahmed, who commented on the policy in response to a question raised by members of the Senate Committee on Finance headed by Senator Solomon Olamilekan, warned the CBN of the consequences that might arise from it.
She said, “As a Nigerian privileged to be at the top of Nigeria’s fiscal management, the policy, as rolled out at this time, portends serious consequences for the value of the naira to other foreign currencies.
“I will, however, appeal to this committee to invite the CBN governor for required explanations as regards the merits of the planned policy and the rightness or otherwise of its implementation now.”
The Senate had noted that just two days after the announcement of the policy, the naira had fallen from 740 to 788 against $1 due to a rush to exchange the naira notes for foreign currencies, particularly the United States dollar.
The senators noted that the policy might be well-conceived, but the timing was wrong as the naira might fall to as low as 1,000 to the dollar before January 31, 2023 fixed for full implementation of the policy.
Emefiele, however, said he did not need to consult anyone on the matter.
Experts divided
Responding, a Professor of Economics, Jonathan Aremu, wondered why the Finance minister was not carried along, noting that it was evidence of the gap between the fiscal and monetary policy authorities in the country.
Aremu said, “Changing of currency notes is not an essential monetary policy tool. So many people may read this intention as political geometry. I am yet to be convinced regarding the basis for this.
“Are we going to be changing our currency if we have these kidnapping issues?”
The Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said it was difficult to see any compelling value proposition of the currency redesign idea.
Yusuf said the cost of such an action would be outrageous and disproportionate compared to the expected benefits advanced by the CBN.
“At a time when the government is grappling with high fiscal deficit, debt crisis, severe revenue crisis and underfunding of many government projects and programmes, it is most inappropriate to embark on such a profligate exercise. Currency as a percentage of money supply is less than seven per cent,” he stated.
But a former CBN Deputy Governor, Prof Kingsley Moghalu, differed, noting that it was troubling to have 80 per cent of bank notes outside the banks.
“The CBN obviously wants to force all those notes back into the banking system. Those with notes must surrender to get new ones or else they become illegal tender after January 31, 2023,” he noted.
Moghalu added that it was a way to withdraw currency from circulation, an unorthodox way of tightening the money supply in the face of rising inflation.
Also, a Professor of Capital Market and Chairman, Chartered Institute of Bankers of Nigeria, Abuja branch, Uche Uwaleke, said the decision to replace some naira denominations with new ones would be positive for the economy in the medium- to long-term.
He said, “First, although the measure does not amount to demonetisation of big currency notes often carried out by central banks to curb black money and corruption, it will go a long way in ensuring that a lot of naira notes circulating outside the banks are crowded in.
“If it leads to large deposits in banks, it means the banks will have more money to lend, which may reduce interest rates.
“I also think it may have the effect of reducing speculative attacks on the naira in the parallel market.
“I expect that the Financial Intelligence Unit will be on the watch out for huge deposits as a way of monitoring illegitimate transactions.”