A simple answer to currency redesign conundrum

The Central Bank of Nigeria’s recent monetary policy involving a currency redesign and swap of old notes has been the cause of hardship for Nigerians and the subject of many debates and commentaries. Experts have criticised the implementation of this policy, positing that it is decapitalising the poor and predicting that it will cause a shrinking of the Nigerian economy. The Central Bank Governor has argued however, that “The advantages of the currency redesign are overwhelmingly enormous and will benefit the economy in the long run”

I have, from day one of this policy been curious as to how it could impact financial inclusion and promote cashless transactions especially among the rural poor. In theory, this seems like a no-brainer and capable of coercing people to transact electronically but the reality in some parts of Nigeria is dire as the disruption to trade and the economy are becoming unbearably noticeable. All this is happening weeks from the general elections, which seems to be one of the factors the policy is targeting to reduce corrupt practices like vote buying. However, I am more interested in the intended and indeed the unprecedented consequences of this policy on financial inclusion and electronic payments.

Financial inclusion refers to the provision of financial services to individuals and businesses that have previously been excluded from the financial system. This can include access to savings accounts, loans, insurance, and other financial products and services.

In emerging economies, financial exclusion is often high due to a lack of access to formal financial services, particularly for low-income populations, rural populations, and women. This can limit their ability to save, invest, and manage financial risks, and hinder their economic growth and development. Inarguably, central banks play a crucial role in promoting financial inclusion in any country. The central bank is responsible for setting and implementing monetary policy, which aims to regulate the supply of money and control inflation. By promoting financial inclusion, the CBN can help to create a more inclusive and stable financial system, which can support economic growth, reduce poverty, and improve the quality of life for people in emerging economies. The opposite is of-course obtainable when adequate provisions are not made to support inclusion or when a monetary policy implementation goes awry as we are currently witnessing.

Therefore the CBN is crucial to Nigeria’s increasing access to financial services as it  can encourage the development of new financial products and services that can increase access to financial services for people in remote and rural areas. This encouragement usually happens within a strong regulatory framework in order to ensure that financial institutions are subject to appropriate regulations, while also encouraging the development of a supportive regulatory environment that encourages the growth of new financial services providers.

An important function of the CBN is to support innovation in the financial sector, such as through fintech, which can drive the development of new financial products and services that better meet the needs of excluded populations. When all these are in place, and the population is significantly financially literate and included, overnight currency redesign policies can work without hurting the economy or causing hardships. Despite reasons cited ranging from fighting corruption, insecurity and enhancing the digital payments, I am not convinced that promoting inclusion and enhancing electronic banking was ever an objective of this policy.

Ultimately, financial inclusion is a key tool for reducing poverty, improving financial stability, and promoting economic growth and development. By providing access to financial services, financial inclusion can help to empower individuals and businesses in low-income communities, enabling them to better manage their finances, reduce financial risks, and build a more secure and prosperous future.

However, according to a World Bank Group internal paper, only 34 per cent of the Nigerian population have bank accounts and only nine per cent use digital platforms for economic and financial transactions. With these types of numbers, it is easy to see the imminent destruction of economic activities when approximately N3 trillion is taken out of circulation only to print and circulate N300 billion. With a capacity of printing N1 trillion per year, the Nigerian Security Printing and Minting Company will take three years to print the N3 trillion out of circulation and perhaps even longer if you consider its adequate distribution. Nevertheless, some may argue that the whole point is to reduce cash transactions which can only be done with bank accounts and through digital platforms. How then do we expect to bank almost 70 per cent of the Nigerian population within a short period and accommodate them on telecommunication and electronic banking infrastructure that has not been optimised for such a jump in users and transactions?

For many Nigerians, this is one of those periods of their citizenship when they have more questions than answers. However, one simple answer is that the old notes and new ones co-exist as legal tender until such a time when public order is restored, when there is adequate circulation of the new notes and importantly, when majority of Nigerians are financially included with access to alternative digital financial services. God bless Nigeria.