Allow Old, New Naira Notes To remain – Capital Market Stakeholders Advice CBN

Stakeholders in the capital market are unanimous that the Federal Government must urgently ease the hardship occasioned by the poor implementation of the naira redesign policy in order to safeguard the economy.

Most experts agreed that the best approach for the government and the Central Bank of Nigeria (CBN) is to allow the old and new naira notes to remain in circulation until such a period that the old naira notes are sucked in by market forces of transactions.

They agreed that naira redesign has many benefits but noted that the conception, timing and implementation appeared faulty, resulting in the level of hardship being faced by Nigerians.

President, Chartered Institute of Stockbrokers, Mr Oluwole Adeosun, said naira redesign conceptually should be a welcome development as it has many benefits, including ability to enhance the monetary policy capacity of the Central Bank of Nigeria.

According to him, naira redesign could help to moderate inflation by reducing the amount of unbanked money in the circulation, promote the cashless economy, with its well documented benefits.

“However given the huge informal sector with over N2 trillion unbanked money, and just about 60 million people with BVN and close to 300 local governments out of the existing 774 without any banking institutions, the exercise is one that clearly requires time for full and effective implementation.

“Irrespective of whichever stand one takes on the subject, the reality is that the average Nigerian has encountered immense hardship in recent weeks, and this requires urgent action in making the new currency available for legitimate cash transactions by the citizenry,” Adeosun said.

Managing Director, Arthur Steven Asset Management, Mr. Olatunde Amolegbe, said while a policy such as naira redesign has some benefits but timing and implementation are always critical factors for the success of any such policy.

“It’s clear the CBN got the two wrong. The solution will be to allow the old and new currency run concurrently for about a year within which the old currency would have been fully absorbed into the system and the new ones would have entered the economic system in a seamless manner,” Amolegbe, the immediate past president of CIS, said.

Former President, Association of Securities Dealing Houses of Nigeria (ASHON) and Chairman, Lagos Commodities and Futures Exchange (LCFE), Chief Onyenwechukwu Ezeagu, said the fault was in the “methodological implementation” of the naira redesign, blaming the “Nigerian factor” in the process of implementation.

“As things stand now, even with all that is being contested in the courts, my opinion is that we cannot afford to truncate this policy because of its numerous social, security and economic benefits.

“All efforts should be geared towards ensuring its success and full implementation; more of the new notes should be accessible through the money deposit banks and other alternate channels while aggressively mopping up the old naira notes so as not to stifle the economy and cause more hardship on the already traumatised Nigerians,” Ezeagu said.

Group Executive Director, Investment Banking, Cordros Capital, Mr. Femi Ademola, said redesign and reissue of currencies around the world is a normal occurrence for several reasons, most importantly, to prevent counterfeiting the currencies.

“So, it is not bad idea for Nigeria to redesign her currency. However, I think the implementation of the policy is very poor. The unintended consequences are more extreme than prepared for and might have made nonsense of whatever objectives the naira redesign is meant to achieve.

“In my opinion, the best way to proceed is for the federal government to allow the old and new notes to continue as legal tenders and the banks will gradually replace the old notes with new notes as they get mutilated,” Ademola said.

According to him, the way most economies implement currency redesigns is to allow the old and new ones to run concurrently for as long as the old currency is still crisp. Once it gets mutilated, it is returned to the banks and replaced with new notes. There is usually no need to put a deadline to the swapping of old notes with new ones. Some economies redesign their currencies, or at least some of them, every 10 years.

“For example, in 2016, the US Treasury announced the redesign of their currencies, especially the $100 note by adding some security features. The announcement included that ‘it is not necessary to trade in your old notes for new ones. All US currencies remain legal tender, regardless of when it was issued’. So, part of a seamless implementation of the new naira design should have included the concurrent use of the old and new notes until the central bank is able to replace the currencies,” Ademola said.

He pointed out that while the naira redesign may not be ill-advised on its own, the motive for introducing it might be faulty; which might have also affected the timing of the policy.

“Every policy should be done to stimulate the economy and not restrict it except in a period where the economy is over-heated and you want to slow it down, by force. So in the first instance, I don’t think it is appropriate to use it to enforce the cashless policy. The cashless policy should be infrastructure-driven where alternative channels become so comfortable and reliable that there is no need to hold cash. Nigeria has not reached that level yet, so enforcing cashless policy by restricting cash may be ludicrous.

“Businesses and individuals are being restricted from carrying on their genuine businesses due to lack of cash and bank platforms do not have the capacity to handle the volume of transactions. In my opinion, we are better off allowing the market forces to dictate market trends on cash rather than regulations,” Ademola said.