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On CBN’s Extension of Deadline for Currency Swap

by Isiyaku Ahmed
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 By Dr Abdussalam Muhammad Kani

The integrity of a local legal tender, the efficiency of its supply as well as its efficacy in the conduct of monetary policy is a major hallmarks of a great Central Bank.  The global best practice is for central banks to redesign, produce and circulate new local legal tender every 5–8 years.

However, Nigeria’s existing series of the Naira has not been redesigned in the last 20 years, as enshrined in Section 2 (b) of the CBN Act 2007.

Currency management is a key function of the Central Bank of Nigeria, subject to the approval of the president section 20 of the CBN Act 2007 allows the CBN to change the legal tender and such naira note changed shall be recalled and will no longer be used after reasonable notice.

Issues and Observations

1.What all known central banks do all over the world is to allow the public to use old notes side by side with the new notes until the recalled currency is mopped out by the apex bank through commercial banks.

In support of this global practice, Section 20 (3) of the CBN Act 2007 mandates CBN to redeem the face value of the recalled currency upon demand even after the expiration of the notice of recall. The implication of the provision of section 20 (3) is that an individual may decide to take money (old notes) to the bank after the expiration of the notice of recall and the bank is under statutory obligation to accept it and redeem it at face value.

This was the reason why in 2009 during the introduction of polymer notes of N5, N10, N20, and N50, the then CBN Governor, Professor Charles Soludo gave an extension in phasing out old naira notes at public disposal after public outcry. 

2. Obviously, the cashless policy is of utmost importance for Nigeria’s economic prosperity. This is because the policy will ensure that all significant financial transactions are tracked, hence leading to a reduction in financial-related crimes. The policy will equally lead to an increase in tax revenue as more people will be brought to the tax net.

Inflation induced by too much money in circulation will certainly reduce and above all cost of printing new currency, and notes will also reduce via the implementation of a cashless policy. By extension, the policy will deter vote buying and other cash inducements to INEC officials and security agencies during the upcoming 2023 general elections.

3. From individual and business perspectives, a cashless policy will reduce risks associated with cash handling, pilferage, and fraud by attendants. Apart from an increase in people’s saving habits, the cashless policy will prevent the public from the risk of collection of counterfeited or mutilated notes and save people’s time as they transact all businesses from the comfort of his/her house.

Tax planning and minimization of the tax burden, the opportunity to negotiate with banks for a reduction in bank charges as well as access to bank credit facilities are other benefits of the cashless policy for individuals and businesses in Nigeria.

4. However, according to Enhancing Financial Innovation and Access to Financial service survey (2020) only 47.6m (44.8%) of Nigerians are into banking while 38.1m (35.9%) are unbanked. The survey further reveals that financial inclusion in the Southern part of Nigeria stood at 58.6% whereas in the North it was 33.3%. 

In the Northwest 23.9m (68%) are financially excluded. This implies 7 out of 10 people in the Northwest are unbaked and financially excluded (EFInA, 2020). Thus, the impending dangers and repercussions of implementing a cashless policy without due diligence will be low sales turnover, closure of businesses, defaulting in bank loan repayment, low access to bank credit facilities, and inflation.

FIDAC’s recommendations on CBN Redesigned currency and Cashless Policy

1.CBN should make it an offense for any commercial bank to give old N200, N500, and N1000 notes at their counters to customers henceforth.

2Any bank ATM found dispersing old N200, N500 and N1000 notes should be sealed and the bank fined.

3.To ensure the speedy return of old N200, N500 and N1000 note CBN should formally inform supermarkets, fuel stations, and POS operators to collect old notes from the public and credit their accounts with the equivalent amount and later return them to banks.

4. To ensure that 35.9% (38.1 million) of the unbanked Nigerian population as reported by EFInA to Financial Services in Nigeria Survey (2020) are brought into banking, the apex bank should resolve issues related to the lack of capacity of the current banking sector to handle the anticipated pressure, safety of people’s money in banks, unnecessary bank charges, unreliable internet network, the deficit in digital infrastructure, the literacy level of rural dwellers, erratic electricity supply and its absence in some rural areas as well as turnaround time to resolve failed transactions by the banks.

Similarly, relying on IMF Financial Access Survey (2021) that there are 5,158 bank branches, 18,810 ATMs, and 129,154 registered Mobile Money Agents in Nigeria, CBN should urgently instruct commercial banks to open more branches, especially in rural areas and also install more ATMs.

5.EFCC, ICPC, NFIU, and other security agencies should arrest and prosecute individuals found selling redesigned new naira notes to the public. Similarly, POS operators found charging over N100 per N10,000 for withdrawal of new naira notes should be apprehended and prosecuted.

While expressing gratitude on behalf of Nigerians to CBN and Presidency for listening to public outcry on the need to extend the dateline for using and returning the old naira notes to banks, it is FIDAC’s hope that relevant provisions of the CBN Act 2007 especially section 20 (3), (4) and (5) on changing the legal tender and reasonable notice for the recall of the old naira notes will be impartially followed so as to avoid jeopardizing Nigeria’s impoverished economy.

Dr. Kani is the Executive Director of the Fiscal Discipline and Development Advocacy Center (FIDAC)

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