John Omachonu
Mixed feelings have continued to trail the proposed redesigning of the naira, with some financial analysts advising the Central Bank of Nigeria, (CBN) to be wary of likely pitfalls that could result in unintended adverse consequences.
Specifically, the analysts including Bismarck Rewane, Victor Ogiemwonyi, Muhammed Hussaini, John Agbo and Amnu Gwadabe, among others have expressed cautious optimism.
Their fears were heightened by the alleged frosty relationship between the finance minister, Zainab Ahmed, responsible for fiscal policy measures and Godwin Emefiele, CBN Governor, superintending over monetary policy measures.
Also, the inability of the country to benefit from the ongoing Russian-Ukraine war due to inherent internal contradictions typified by impunity, insecurity, among others, may further cast doubt and therefore deny the much needed confidence for the success of the exercise.
Renowned economist and Chief Executive Officer, Financial Derivatives Company Limited (FDC), Rewane, contends that the planned exercise will not address burning issues, but rather increase the level of uncertainty in an economy which is slowly facing crisis of confidence.
“The answer is that the new notes will do nothing to address the burning issues but will only increase the level of uncertainty in an economy which is slowly facing a crisis of confidence”, he said in a breakfast meeting with Lagos Business School (LBS).
He said, the notion that hoarding of currency notes outside the banking system is the primary cause of inflation is absolutely wrong. This is because cash and currency in circulation (N3.2 trillion) constitutes less than seven per cent of the money supply (N48 trillion).
Besides, he said that the exercise will only achieve part of the objectives by banks exchanging about N86 billion daily between December 15, 2022 and January 31, 2023 to enable them meet the targeted N3.2 trillion in circulation.
Similarly, he sees the exercise rather accentuating inflationary pressures because, according to him, cash is only six per cent of money supply, and money supply growth average over the last five years is 12.5 per cent. This, to him, is likely to dash the hope and expectations of the apex bank and its promoters on the redesigning as the last resort to bounce back the country’s currency against the dollar at the foreign exchange market.
According to him, the CBN’s decision to schedule the currency change on January 31 in the first quarter of 2023, with general elections taking place in February and census in April, will aggravate disruption and unintended consequences in the country’s economy.
He, however, suggested that the best option for the government was to postpone the planned redesigning or currency change policy and National Census in Q1’23 and focus on general elections.
Agbo, financial analyst and chartered stock broker said “I actually don’t know of any economic sense in printing new naira notes in a severe inflationary system. Withdrawing the current ones and printing new notes comes at a high cost.
Unlike in the UK where the reason is to change from queen Elizabeth who is late to King Charles. And this is compulsory when there is a change of baton in the monarchy system.”
Mohammed, managing director, Muregi Associates, Abuja said, “simply more woes and mostly likely the final downfall of the currency called Naira.”
However, Gwadabe, president of Association of Bureau De Change Operators of Nigeria, (ABCON) said” The issue of naira redesign is an orthodox policy of monetary authorities to usually check illegal economic behaviour in the economy like hoarding of currency, currency substitution, rent seeking, popularly known as round tripping and therefore as a responsible organisation guiding the set measures of anti-money laundering and terrorism financing for our members will have our backing.”
Ogiemwonyi, retired investment banker said, “All week, the debate has been about CBN’s intention to redesign the Nigeria’ s National currency, the Naira, and reprint the three largest denominations and calling in the old notes for cancellation.
The debate, essentially , has been about whether this is a good or bad policy. Like anything else, every good thing, has a bad side.
All we have heard from critics is that it is badly timed. So what is the right timing? Whatever is good is good, no matter the time.”
An advocate of floating of the naira, the banker said, “Finally, to make this reforms complete, the CBN should ban all Dollar cash transactions in Nigeria. Domiciliary Accounts should be the allowed, to be the medium for personal FX transactions. All Banks should be encouraged to get their customers to open these accounts and operate them freely. First, not more than 6 weeks should be given to let all those with Dollar cash, to deposit into their various Domiciliary Accounts and should be allowed to operate freely as it was in 2015 before the disastrous decision to tamper with it.
It was said at the time, that Nigerian Bank’s Domiciliary Account Balances reached $26bn. Because of the distributed nature of it, it was efficient. This was another Dollar Reserve that supported the economy apart from the CBN FX reserve Balances. Tampering with Domiciliary Accounts was disastrous, just when Nigerians were getting use to enjoying this phenomenon, someone decided, that was the cause of corruption and targeted it. By the time they realized their error, the balances have vanished, bringing back pressure on the CBN to fund Personal Education, medical healthcare abroad and travels generally.
Nigerians who were using their Domiciliary Account Balances to meet their personal FX needs, suddenly got a rude shock.
The CBN seem to have woken up from their slumber, this policy has merits and should be allowed to complete the necessary reforms that will put the economy back in place.
We have no other alternative right now.”
The National Bureau of Statistics, (NBS) is scheduled to publish the headline inflation and related data for October on Tuesday, November 15.
According to Rewane, “After eight consecutive increases, Nigeria’s official headline inflation is likely to maintain its upward trend in the month of October. Our econometric model and survey of markets in Lagos and environs indicate that headline inflation will soar to a 17-year high of 21.32% in October. This will represent a 0.55% increase compared to the headline inflation of 20.77% recorded in September 2022.
The major inflation-stoking factors remain currency depreciation, money supply saturation, supply shortages, and logistics constraints. The naira has crashed by 50.79% to N855/$ YTD and is likely to weaken further as the CBN moves to redesign three denominations of the currency. Meanwhile, food inflation is expected to accelerate further (23.95%), against the expectation of a slowdown, due to the ravaging flood that has affected agrarian states, including Benue state. Core inflation will likely stay elevated on the back of higher PMS and diesel prices, compounded by the persistent fuel scarcity.”
Commenting further, he said, “One commodity that is in abundant supply in Nigeria is the political promises of candidates including how the sky can be turned from blue to black. Ozzie once said, “money talks and BS walks”. So what we do know is that the next election is showing signs of a battle between those funded by oil bunkering warlords on the one hand and the others funded by financial terrorists who are extorting money from economic bottlenecks in the name of levies, taxes, fines and regulations.
But no matter what happens, the Nigeria economy will be opened up to more competition and reform by whoever is the next president.”
Hunger Becoming Monster In Africa
There is no doubt that Africa is facing the worst food crisis in four decades. From insecurity in Nigeria as well as natural disasters to the drought in Somalia, hunger is ravaging Africa.
According to the FAO, 346 million or 27 percent of the entire population in the continent are facing extreme hunger.
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Although food crisis is not new to African countries a stronger dollar (due to higher interest rates), or from climate change), and limited global supply (resulting from the Russia-Ukraine war) have compounded the issue.
The tight global food supply and the appreciation of the greenback have made food imports more expensive for many African countries, especially as their foreign reserves bleed out.
According to Rewane, in Nigeria, for instance, “external reserves are down by 12% ($37bn) from a year ago, causing the naira to depreciate to a new low of N855/$ as the CBN has less to defend the currency. Sadly, the food problem is not going anywhere soon.”