Tackling Currency Counterfeiting with Naira Redesign

James Emejo, explores the narrative around the planned redesign of some denominations of the naira by the Central Bank of Nigeria and concludes that the benefits far-outweigh any perceived costs

Expectedly, the October 26 announcement by the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, to redesign the Naira has expectedly attracted mixed reactions with politicians in particular crying foul.

The exercise, which is coming on the eve of the 2023 general elections has been criticised as politically motivated by a section of the political class.
A few have also expressed their reservations over the financial cost implications of the move.
To set the context of the conversation, the CBN governor had disclosed the bank’s resolve to redesign, produce, and circulate new series of banknotes including N200, N500, and N1,000 denominations.

The currency redesign project which had the full backing of President Muhammadu Buhari, will commence with the circulation of the new banknotes on December 15, 2022.

RATIONALE
According to the CBN governor, the decision was aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
Other reasons adduced for the exercise were the need to control currency in circulation – with 80 per cent outside the vaults of commercial banks.

According to Emefiele, as of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks.
The scenario is particularly troubling given the country’s high rate of inflation and foreign exchange challenges.

The redesign is also aimed at tackling vote-buying by politicians given that inflation is often spiked-off during election.
In fact, there had been concerns that except there was a bold policy direction, the forthcoming general elections could provide monetary authorities with major headache in view of the proposed election spending.

I’m addition, the naira redesign project was aimed at tackling terrorism financing which remains a growing security concern in the country.
For a long time, Nigerians have sought financial regulatory intervention to make it difficult for kidnappers to seek ransom from victims. The volume of monies collected as ransom also create challenges for monetary authority.

In a nutshell, the currency redesign effort could be seen as an attempt by the CBN to address a myriad of problems using a single intervention.
The CBN governor, however, said there had been persisting concerns over the management of the current series of banknotes as well as currency in circulation, particularly those outside the banking system in the country.

He said currency management remained a key function of the CBN as enshrined in Section 2 (b) of the CBN Act 2007, stressing that the integrity of a local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy are some of the hallmarks of a great central bank.
He pointed out that in recent times, however, currency management had faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country.

He said recent development in photographic technology and advancements in printing devices had also made counterfeiting relatively easier, stressing that in recent years, the CBN had recorded significantly higher rates of counterfeiting especially at the higher denominations of N500 and N1,000 banknotes.

Contrary to speculations
Emefiele, further clarified that although the global best practice is for central banks to redesign, produce and circulate new local legal tender every five to eight 8 years, the Naira has not been redesigned in the last 20 years.
He said, “On the basis of these trends, problems, and facts, and in line with Sections 19, Subsections a and b of the CBN Act 2007, the Management of the CBN sought and obtained the approval of President Muhammadu Buhari to redesign, produce, and circulate new series of banknotes at N100, N200, N500, and N1,000 levels.”

Emefiele said, “So first of all, what we want to do is mop up the N3.2 trillion back into the CBN so we can take control of the money supply. Again, this would help to rein inflation and it would have a positive impact on inflation.”
He explained that the new and existing currencies shall remain legal tender and circulate together until January 31, 2023, when the existing currencies shall seize to be legal tender.

ANALYSTS WELCOME REDESIGN PROJECT
If anything, the currency redesign project has enjoyed the overwhelming support of the public.
One of its covert objectives is to.compel politicians and corrupt individuals who had stolen huge public resources and hidden them in safe havens to bring them back to the banking system.

This is because any money that is outside the formal financial system could be disruptive to stability.
Also, given that the Economic and Financial Crimes Commission (EFCC) is already collaborating with the CBN to track such stolen public treasuries, amidst wanton poverty in the country, the currency redesign programme has received wide public acceptance.
A former Deputy Governor of the CBN, Prof. Kingsley Moghalu, commended the apex bank on the proposed redesigning of the naira, saying the measure will address insecurity in the country.

He said, “I fully support the Central Bank of Nigeria in redesigning the Naira. If 80 per cent of banknotes in circulation are outside the banks, that is troubling.
“The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender them to get new ones or else it becomes illegal tender after January 31, 2023.”
Moghalu said, “This is also a way to withdraw currency from circulation, an unorthodox way of tightening the money supply since the country is battling high inflation.

“The flip side is that people who are holding huge amounts of cash outside the banking system for nefarious reasons will go to the parallel forex market to buy hard currency, putting further downward pressure on the value of the naira as too much naira will be chasing too few dollars.”
Also, a group, the Ethnic Youth Leaders, said the decision to redesign the naira was a welcomed development as it was a way of tightening the money supply in the face of rising inflation.

Also reacting to the development in separate interviews with THISDAY, Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Prof. Uche Uwaleke, said the decision to replace some naira denominations with new ones will positively impact the economy in the medium to long term.

He said though the measure does not amount to demonetization of big currency notes often carried out by central banks to curb black money and corruption, it will nonetheless, “go a long way in ensuring that a lot of naira notes circulating outside the banks are crowded in.”
He said, “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.
“Despite the huge cost involved in changing currency notes, I think it’s time to sanitize the system especially now that electioneering activities have kicked off. However, I think the deadline of Jan 31 2023 is short in view of the number of naira denominations involved, from 100 to 1000. The CBN may consider extending it with time.”

Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, said currency redesigns are typically carried out as a security measure against counterfeit notes and to get a grip on currency in circulation.
He said while this exercise may be beneficial in terms of the measure earlier mentioned, it would also come at a large cost due to consultancy, design, and printing fees.

Shelleng said, “At this stage where the government is severely strapped for cash, I wonder if it’s a priority. With inflation skyrocketing, the CBN may have seen this as an option to help limit the cash supply in circulation.”
On his part, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said the announcement of the redesign ought to have been delayed until fully implemented.

He said, “Firstly, if CBN plans to redesign the Naira, they shouldn’t have made it common knowledge until fully done and implemented, then, they would give a period of time for everybody to bank the old design or use the same.

“The benefit of changing the design is that monies starched out in homes and containers will start coming out and heading to the banks. There will be so much money for credit facilities and funding of projects and other attendant benefits.

“The danger of announcing it far before implementation is that individuals stocking this Naira cash will start buying foreign currency to stock instead of depositing the monies in the banks. This may spike the exchange rate to an uncontrollable level.”

Also, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, “The reasons given for redesigning the Naira notes regarding efforts to trace ransom payments or curb counterfeiting may be germane but its attendant cost could further increase inflationary pressures on the economy. This decision will not positively lift the economy.”

The apex bank, had however, urged Nigerians to support the currency redesign project which is in their overall interest and the economy at large.
The central bank further insisted that it followed the law and due process to carry out the redesigning exercise, which is 12 years due.

The apex bank’s clarification came against the backdrop of claims by the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmad, that her ministry was not carried along in the ongoing process of redesigning three series of the Naira.
CBN, Director, Corporate Communication, Mr. Osita Nwanisobi, had in a statement, expressed surprise at the minister’s claim, stressing that the CBN remains a “very thorough institution that follows due process in its policy actions”.

He said the CBN Management, in line with provisions of section 2(b), section 18(a), and section 19(a)(b) of the CBN Act 2007, had duly sought and obtained the approval of President Muhammadu Buhari in writing to redesign, produce, release and circulate new series of N200, N500, and N1,000 banknotes.
The Chief Executive, Globa Analytics Company Limited, Dr. Tope Fashua, said achieving price stability and exchange rate parity requires the cooperation of all stakeholders and not only the central bank.

According to him, one of the first steps to achieving a strong local currency is by the Nigerians developing a love for the naira.
 Fashua, said the value of the naira was tied to patriotism and nationalism stressing that a “lot of the value of your currency is made up of perception actually – what do people think about the currency? If those who hold the currency don’t have confidence that currency is in trouble”.

According to him, the local currency remained an embodiment of the people as well as fundamental to the economy, pointing out that the US dollar had remained strong partly because it is protected from losing its value.
He explained that mere speculating that Naira would crash could actually lead to its depreciation.