The Institute of
Chartered Accountants of Nigeria has identified five challenges that it says
the Central Bank of Nigeria needs to consider following the apex bank’s naira
redesign policy.
It was reported
that on October 26, 2022, the CBN governor, Godwin Emefiele, announced the
redesign of the N1000, N500 and N200 notes, for which it got the approval of
the President Muhammadu Buhari.
The new notes are
due for circulation this month (December). ICAN, in a publication by its 58th
president, Tijjani Isa, on Monday, noted foreign exchange challenges, inflation
and timing of the policy as some of the major issues the CBN might need to
face.
ICAN
highlighted the challenges the policy might face as follows:
- Firstly,
the CBN asserts that 85% of currency in circulation is outside the banking
system. Given this background, ICAN would expect the CBN to perform a
thorough root-cause analysis of this statistic as it appears inconsistent
with recent initiatives to promote a cashless economy.
Such
initiatives include the eNaira, which was launched In October 2021. In
addition, there are numerous payment solutions provided by fintech companies.
It would be proper for the CBN to understand why such schemes have not achieved
the desired impact and link the underlying issues therein to the currency
redesign policy. That way, it would be possible to monitor and evaluate the
impact of the policy on the volume of currency in circulation.
Coincidentally,
the CBN issued the Exposure Draft of the Guidelines for Contactless Payments in
Nigeria. On October 17, 2022. ICA, and indeed all stakeholders would require
the assurances of the CBN that the proposed guidelines on contactless payments
would indeed make significant complementary impact to the cashless economy
drive.
2) Secondly, the currency redesign policy would potentially negatively
affect the exchange rate of the naira. The official exchange rate remained
relatively stable at a range of N437.66/$1 to N443.26/$1 between October 26 and
November 22, 2022. This seeming appearance of stability does not provide much
cheer. due to the significant illiquidity in the official forex channels.
However, and unsurprisingly, the impact on the parallel market has been
more profound. The naira has depreciated by approximately 10.8% from N740/$1 on
October 26, 2022 to about N840/$1 on November 1, 2022 and N880/$1 on November
14, 2022.
ICAN noted
that two issues were plausibly responsible for the above: (a) Businesses and
individuals are reported to be searching unsuccessfully to access the US dollar
for genuine needs, including the importation of critical raw materials and
machinery. Even where available, the high exchange rate is already leading to
increased cost of production, and hence increase in prices of goods and
services.
(b) It is
likely that perhaps, holders of the currency notes generated from illicit
business and stored outside of the banking system are in a race to convert them
to foreign currency in the parallel market. These will still avoid the banking
system, but also put further pressure on the exchange rate.
- Furthermore,
year-on-year inflation rate has been on a steady rise since January 2022
to date. The all-item inflation rate rose from 15.6% in January 2022 to
20.77% as at September 2022. The food inflation rate similarly rose from
17.13% to 23.34% within the same period. ICAN is concerned about further
rise in inflation rate and the cost of living. - We
note that the CBN is yet to disclose some pertinent details of the
currency redesign policy, such as the cost of designing and printing the
new currency notes. We acknowledge however that the CBN governor has
subsequently confirmed that the printing of the new currency notes will be
done locally. In addition, we welcome the early launch of the redesigned
currency notes by President Buhari on November 23, 2022. - Another
area where Nigerians are apprehensive is the timing of the implementation
of the policy. The existing currency notes cease to be legal tender by the
end of January 2023, while the general election is scheduled to hold in
February 2023. Considering the economics of our recent electoral cycles,
money in circulation typically increases during the general election.
There is some level of uncertainty, therefore, as to what impact, if any,
the currency policy will have on liquidity during the general election. ICAN
recommended strong monitoring of the implementation through the deposit money
banks, in order to moderate the likely impacts on inflation and exchange rates.
It also
recommended closer collaboration between the CBN, the fiscal authorities (i.e
the Federal Ministry of Finance, Budget and National Planning) as well as law
enforcement agencies to preserve the integrity of our financial system.
“Any individual
and organisation found to be contravening our monetary and fiscal regulations
should be prosecuted to the full extent of the law. The CBN should pursue with
renewed vigour, extant policies aimed at improving our foreign currency
reserves.
“The CBN should be transparent in enlightening the public on the cost of
the naira redesign implementation policy. The CBN should pursue vigorously the
drive for cashless economy,” ICAN added.
ICAN added that the CBN should extend the window for withdrawal of the old
currency notes, citing the yuletide season as a reason for such
