The current economic and sociopolitical environment in which the Central Bank of Nigeria (CBN) possesses certain monopolistic, statutory powers in the creation and management of national currency and foreign reserves is characteristically pained, complicated and stressed. For instance, on the macroeconomic front, there is the unprecedented presence of virulent stagflation (the concurrent existence of unemployment and inflation) following import restrictions side by
side with undue applications of ways and means which conspired with a series of external and
internal debts that both aggravated the multiplier effect of money supply and crowded out private
sector investment respectively.
This is, in addition, to exchange rate volatility in a heavily import-dependent economy, the
uncontrollable balance of payments deficits resulting in dwindling foreign reserves, frightening
national budget deficits leading to escalating national borrowings, and grappling with the
existential challenge of a huge underground economy.
Like never before, political gladiators now wield state powers to restrain opposition parties from
campaigning in certain strategic locations. With the rising wave of impunity, there are reports of
stack naira bills running into billions, held ahead of the 2023 general elections, apparently for
vote buying and other political mischiefs. Physical cash estimably put at hundreds of millions are
paid daily across the 36 states and FCT as ransoms to bandits, terrorists, kidnappers, etc. in the
land where hunger roars like a ferocious beast in the face of heightening insecurity.
The above structural background is of great national concern and should be tackled with a great
sense of national urgency. However, it does appear from the body language of the CBN
Governor and as contained in the CBN fact sheet that much of the solution lies in the CBN
currency redesign. This is not surprising as the CBN Governor has since interpreted its mandate
beyond its conventional jurisdiction to include agriculture, industries, production, curbing of
criminal activities oozing from the political and socio-cultural atmosphere and the moves to
cushion the effect of COVID-19.
Is the CBN biting more than it can chew? Well, for one, the CBN Act mainly charged it, inter-
alia the responsibility “to promote monetary stability and sound financial structure in Nigeria”.
This mandate reveals that the monetary authorities have limited powers to single-handedly
address the above sociopolitical and economic crises hunting the Nigerian state. This symbolic
warfare can only be won in the spirit of the sincerity of purpose, patriotism and proper policy
coordination between the monetary and fiscal authorities.
Sadly, there are clear signs of rising discordant tones between both authorities. Earlier in
October, the Minister of Finance had opened up on national media that her office (which is at the
apex of the fiscal authorities) was not carried along with the initiative of currency redesign, even
when the extant law made room for the Ministry to be adequately represented through the
presence of the permanent secretary of the Federal Ministry of Finance in any of the CBN board
of Directors sessions. Meanwhile, the CBN Governor, rather than resolving the purported
information gap quietly, chose to use the same media to inform Nigerians that he has the backing
of the President.
Looking at the circumstances, first the economic realities; between December 2015 and
September 2022, currency in circulation doubled from N1.46 trillion to N3.23 trillion. This
period coincided with the heavy quantitative easing of currency production via the monetary
printing press which was a clear violation of section 38 of the CBN Act of ways and means
lending, alongside the massive central bank intervention funds, particularly during the COVID-
19 era to October 2022. Unfortunately, about 85 per cent of N3.23 trillion (i.e. N2.7455 trillion)
in circulation is outside the vaults of commercial banks. In effect, monetary policy becomes
impotent, as a chunk amount of currency is not within the CBN monetary control space.
The CBN is, no doubt, attempting to reverse the ugly trend it earlier induced through currency
redesign. Nevertheless, the CBN Governor should not brush aside the fact that the potency of
monetary policy also depends on the spread differential between the nominal interest rate and the
real interest rate. Presently in Nigeria, the nominal interest rate is higher than the real interest rate
which is a potential culprit that may truncate the efficacy of monetary policy.
The current, unusual boom-and-bust behaviour in the foreign exchange market (FOREX) cannot
be largely attributed to the currency redesign program as FOREX can importantly be
characterized as one exhibiting the animal spirit syndrome. Indeed, a host of forces ranging from
diaspora remittances, oil receipts and theft, FDI, FPI, the tremendous quest for foreign education,
and heavy reliance on imported refined products like petro to remote forces like significant
political upheavals, flooding etc. all play a role in determining who buys what and who sells
what in the FOREX. By elementary principle, if the demand for the dollar is higher than the
supply of the dollar in the Nigerian FOREX then the value of the dollar will appreciate over the
value of the naira and vice versa. However, there seem to be some extravagant expectations over
the strengthening of the naira against the dollar following the new currency redesign policy.
Well, the naira redesign no doubt has its share of influence on FOREX. For one, it complements
the CBN policy move to contract the money supply. This means that there will be fewer naira
units chasing the dollar. Hence naira will at best only tend to gain value over the dollar in the
interim.
This effect is inconsequential to the impact the currency redesign will have on the naira via the
naira dollar speculative channels. Lastly, currency redesign cannot earn seignorage (the real
revenue government earns from printing national currency) for the government as it is meant to
replace existing currency in circulation from which seignorage had already been earned at the
time of print.
In all, the currency redesign as an economic solution will not have much of the desired effect on
tackling the macroeconomic crises confronting the masses, particularly as stagflation typically
poses a policy dilemma. The monetarists believe that inflation is a purely monetary phenomenon,
yet empirical studies have shown that prolonged stagflation succumbs to supply-side solutions,
an option that largely depends on the operations of the fiscal authorities.
However, the currency redesign will be an enabler in achieving certain secondary objectives that
are within the purview of the fiscal authorities. First, currency redesign will considerably mop up
much liquid in circulation used for terrorist financing and other related criminal activities like
banditry, kidnapping, narcotics etc. It will also aid in minimizing money politics (i.e. guarding
against vote-buying activities) in the upcoming general elections in February 2023. Quite
frankly, whether these laudable goals will see the light of day strongly depend on the willingness,
credibility and preparedness of institutions (EFCC, DSS, NSA, security agencies etc.) which
operate within the fiscal authorities. If these institutions are ready to pursue national interest
against all odds, then we will be confident that the sociopolitical environment will once again
occupy its pride of place in society where insecurity will be significantly minimized and a newly
credible-electoral process is installed to usher in men and women of character, capacity and
competence in governance.
One major reason the CBN was granted independence is to be free from any form of political
influence. Hence, the CBN Governor should remain politically neutral. This implies that while
the primary reasons for the naira redesign to address currency counterfeiting, the high cost of
physical cash management, worsening shortage of clean and fit banknotes in circulation, the
enhancement of digital/electronic transacting channels of the naira and the strategic move to
bank the unbanked are laudable, he should avoid the temptation of throwing his weight around
critical national assignments like tackling social vices and political mischiefs. The truth is the
primary reasons for currency redesign are complementary (not competitive) to the secondary
reasons which lie within the scope of the fiscal authorities.
Though the speed at which physical cash flows from the unbanked to the banked is still very
unimpressive given the January 31st 2023 deadline, but then, any extension beyond this date will
grossly compromise the checks and curbs of money politics.
I hereby strongly appeal to both authorities (fiscal and monetary) for the sake of national interest
to put aside their differences having in mind that money is a ‘social contrivance’, a national
instrument that makes the sociopolitical and economic alignments inseparable.
Dr. Eromosele teaches at the Federal University Otuoke, Bayelsa State
