The politics of redesigning the Naira

Nigeria has a very young population profile, so the current generation may not be aware but in April 1984, the Head of State, General Muhammadu Buhari, ordered that the Nigerian currency be redesigned. Everybody was directed to deposit their money in banks for safekeeping until the government begins exchanging their old bills with the country’s new currency in a move aimed at catching corrupt officials. The then four-month-old military government had seized power with the objectives of solving the nation’s economic crisis and stamping out widespread corruption. Today, almost four decades later, we have the same president and we are still at that point of resolving these two issues of economic crisis and corruption.

In 1984, the Buhari Military regime charged corrupt politicians of the Shagari administration of hoarding millions of Naira they had stolen from the national coffers thereby destroying the economy. The government granted a two-week grace for changing old into new notes placing a limit on how much individuals could place. There was trauma and suffering in the land. Land borders were sealed and everyone leaving the country by sea or air was searched for old bills, as Nigerians lined up at banks to deposit their money while waiting for the new notes. The banks had neither a sufficient quantity of new notes nor the capacity to distribute what they had to all their customers. People with money in the banks queued for days without success and could not feed their families because they could not access their own money.  

Chief of Staff at the time, Brig. Tunde Idiagbon, said individuals and corporations exchanging in excess of the limit must explain the source of the money and receive government clearance. He argued that the major cause of the nation’s economic problems was the deliberate sabotage of the Nigerian currency through large-scale illegal trafficking. Businesses and individuals lost a lot of their money as the economy and society suffered. Borders were closed and every Nigerian was a suspect of economic sabotage. The infamous Decree 2 at that time made it possible to arrest and detain people without even investigating them not to talk of proof of wrongdoing.

The current policy decision to change the currency will definitely not have the same level of devastation on the Nigerian economy and society as was the case in 1984. The terrorist state of the time that jailed virtually the entire political class has softened and  the biggest thieves are seldom jailed today. Demonetisation has gone a long way and many people can pay for goods and services without cash. Those with bank accounts are unlikely to suffer this time.

The CBN governor has explained that the global best practice is for central banks to redesign, produce and circulate new local legal tender every 5-8 years and the naira has not been redesigned in the last 20 years so maybe he is right the time has come. Part of the reason for frequent changes is to stay a bit in front of counterfeiters and I get that. I even agree with the CBN governor that there is significant hoarding of banknotes by members of the public, with statistics showing that over 85 per cent of monies in circulation were outside the vaults of commercial banks – N2.73 trillion out of the N3.23 trillion in circulation exists outside the vault of the commercial banks.

I have seen no evidence that this vast amount of money is in the hands of corrupt politicians. What this situation tells me is that Nigeria is still a substantial cash economy and the majority of Nigerians, we all know, have no bank accounts. Most people engaged in subsistence farming and petty commerce and services keep their small amounts of money in cash. We are over 200 million so small amounts of cash can be a considerable amount of money.  When you order all Nigerians to place all their cash in their bank accounts knowing full well most don’t have, I say it is financial and economic vandalism by the state against innocent citizens. The masses will suffer. They will lose money as they seek ways to bribe and get access to the new currency.

The second justification that criminals and corrupt persons are keeping their naira cash in their houses does not have evidence to back it. We know they have access to ways of changing their Naira into forex or cryptocurrencies and those with a lot of cash will continue to do that. This will further depress the value of the naira. This group might not be large as the bulk of the naira in circulation would be in the hands of ordinary Nigerians who do all their transactions in cash. I repeat that it’s the masses that will suffer.

I find it unreasonable the argument of the CBN that the incidents of terrorism and kidnapping will minimise as access to large volumes of money outside the banking sector used as a source of funds for ransom payment will begin to dry up. First, when people with means are kidnapped, they will get the cash to pay. As for the terrorists, they buy their arms in foreign currency, usually CFA Francs and can therefore move their criminal loot into foreign currency or buy assets locally that they can sell later. If they lose their loot because they cannot change it, they would simply replenish the loot by intensifying ransom collection after the new notes have emerged.

In Nigeria, it is the rule to seek to impose unrealistic deadlines. All deposit money banks currently holding the existing denominations of the currency have already been directed to begin returning these notes to the CBN immediately. We the people have also been directed to begin paying our cash into our bank accounts so we can get the new currency in mid-December. Why so early? Is it realistic to completely swap these currencies in six weeks with the banks having massively cut the number of branches and staff?  

If I was a cynic, I would have doubted the motives of the governor of the CBN in choosing this time to change currency. He desperately tried to become the presidential candidate of the ruling party a few months ago and failed. Now, he is going to cause great suffering and anxiety to citizens weeks before a general election. Angry citizens who are unable to access the new currency are not going to hold the Central Bank responsible, they would blame the ruling party and its candidate. But then, maybe that is the plan.