Lately, Nigerians have been buzzing about the Central Bank’s (CBN) decision to revamp the Naira. The idea behind it – fighting fake money and getting people to use cards and apps more – sounded good. But as things roll out, it seems there’s more to the story.
The whole thing began with something important being left out. When the House of Representatives’ banking committee finally managed to get former CBN Governor Godwin Emefiele to attend a hearing about his naira redesign plan in February last year, he started by giving a passionate speech.
He wanted to fix Nigeria’s economy by tackling issues like illegal hoarding of money, dirty banknotes, inflation, and people being left out of the financial system.
Emefiele said the CBN was reacting to a situation where it couldn’t control the rapid increase in the amount of money in circulation.
To explain, he pointed out that from 2015 to October 2022, the amount of money in circulation more than doubled, reaching N3.3 trillion – with N2.7 trillion being cash outside banks.
His points were technically correct, but they didn’t tell the whole story, which few people understood because of the complex financial details.
Many people got caught up in the political drama, so they didn’t focus enough on whether the plan made economic sense in the first place.
Too Much Control
Two of the four goals of the plan went beyond what the CBN should do—it’s not the CBN’s job to fight corruption or deal with kidnappings. The CBN could have just worked with banks to keep old notes, like other countries do.
For instance, the Bank of England (BOE) gave people plenty of time to exchange old notes for new ones, but Nigeria rushed it.
Confusing Policy
The policy was often called a cashless policy, but it mainly pushed people to use digital money. But many people couldn’t join the financial system because there aren’t enough banks in some areas, and internet access is limited.
People in rural areas were told to put their money in bank accounts to get new notes, but they could only withdraw a small amount, leaving most of their money stuck.
Dealing with Inflation
Emefiele said the plan would help fight inflation by bringing money back into banks. But he didn’t mention that most money was already in banks, and inflation was going down.
Making Things Worse
The plan actually made inflation worse by flooding banks with more money. Banks then lent a lot of money to the government, which made inflation go up even more.
Economic Chaos
The plan caused chaos. Banks couldn’t keep up with demand for new notes, and only wealthy people could easily get them. Businesses lost a lot of money, and Nigeria’s economy shrank by a huge amount.
The Aftermath
After the plan, inflation got worse, businesses raised prices, and the value of the naira fell. Many people couldn’t access their money, leading to problems in farming and more insecurity.
The CBN also made it harder for banks to give out loans around the same time. With less cash around and people holding onto their money in banks, the government had to borrow more to pay its bills. This extra borrowing might actually be pushing inflation up again – kind of the opposite of what the CBN was hoping for.
Lessons Learned
People were angry about the rushed and poorly thought-out plan. It made people pay more attention to the CBN’s actions and understand more about how money works. But we still need to work on making monetary policy easier to understand for everyone.
So, is the Naira redesign a good idea? The CBN’s goals were great, but the timing and how it was done might need a rethink. Nigeria needs a bigger plan to fight fake money and get people using electronic payments more. This could involve teaching people more about money matters, making it easier to open bank accounts in rural areas, and cracking down on people who hoard cash illegally.
The Naira redesign shows us why good economic policies need to be well-targeted. Understanding Nigeria’s unique economic situation is key to making sure future plans work out as intended. That way, Nigeria can move towards a cashless economy that’s fair and strong for everyone.
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