Appraising the basket of losses, gains of costly naira redesign
Collins Nweze
May 11, 2023
President Muhammadu Buharis naira redesign policy implementation hit families, businesses and the economy like a thunderbolt. The Central Bank of Nigeria (CBN) redesign of N200, N500 and N1,000 notes and withdrawal of N2.1 trillion old notes from circulation created a huge cash gap in the economy. As the crisis persisted, public outrage degenerated to violent protests in some cities, with incidents of vandalism and arson at several banks facilities and Point of Sale (PoS) outlets. To speedup economic recovery and prevent another round of naira scarcity, Assistant Business Editor COLLINS NWEZE writes that the way forward is for the CBN to print and circulate more redesigned naira notes ahead of the December 31 sunset for old notes
Bernard Thompson, a computer software developer, was one of the millions of Nigerians that rejected cashless banking due to several risks associated with it. For him, digital payment has little or no place in his business given the rising volume and value of e-frauds emanating from it. That view became more pronounced after he lost N1million to e-fraudsters, who cloned his Automated Teller Machine (ATM) card and made away with his money.
Thompson is one of the cardholders that, according to Nigeria Electronic Fraud Forum (NeFF), lost over N12.8 billion annually to e-fraudsters for using internet banking, mobile banking, Point of Sale (PoS), Automated Teller Machines (ATMs), Unstructured Supplementary Service Data (USSD), web payment, Nigeria Quick Response (NQR) code, among other e-payment channels. Another victim, Michael Abiodun, a Lagos-based vehicle tyre retailer, also got a shocker from the e-fraudsters. Nothing forewarned him of the problem he would soon face on that fateful Saturday. A customer, who bought goods worth N150,000 from him, said he had no cash and requested Abioduns account details to transfer the fund.
He disclosed how he was defrauded: The customer who was buying three new vehicle tyres typed my account number on his phone and within few minutes, I got transaction alert from my bank. The fake alert showed that N150, 000 had been credited to my account. So, the fraudulent customer took the goods and went away. The next working day, which was Monday, I went to my bank to withdraw the money but it was not there. My account officer showed me my last transaction detail, and informed me that the alert on my phone was not from the bank and that it was a fraud. That was how I lost the money and all efforts to trace the fraudster failed.
Abiodun said he released the goods because the fake alert captured his previous account balance and the new deposit by the customer. That, he said, was an indication that the fraudster was collaborating with an insider from the bank. Up till today, I have not recovered that money, he disclosed.
That experience, Abiodun noted, made him to dump cashless banking and only release his goods after payment confirmation from his bank. Today, Thompson and Abiodun have fully returned to the use of digital banking platforms after the Central Bank of Nigeria (CBN) introduced the naira redesign policy implemented alongside the cash withdrawal limit regime. Both policies were meant to give substantial backing to the cashless banking and drastically reduce cash use in the economy.
While the naira redesign policy looks great on the surface, especially after President Mohammadu Buhari and the CBN Governor, Godwin Emefiele, spoke glowingly about its benefits to the payment system and economy, its implementation has exposed the fragility of the e-payment system, brought a lot of hardships to the people, crumbled several small and medium-sized businesses and put the economy on speedy decline.
Understanding the
naira redesign policy
The naira redesign policy was announced on October 25, 2022-three months and three weeks before the general elections. Under the policy, the CBN introduced new N1,000, N500 and N200 denominations and withdrew the old notes from circulation. But a March 3 Supreme Court verdict on a suit spearheaded by Kaduna, Kogi and Zamfara state governments forced the CBN to reintroduce the rested notes.
In its judgment, the apex court directed the CBN and the Federal Government to allow the old and the new naira notes to co-exist till December 31. Emefiele said the introduction of new naira banknotes was a deliberate step by government to check corruption and is backed by its key function as enshrined in Section 2 (b) of the CBN Act 2007. In recent years, the CBN has recorded significantly higher rates of counterfeiting especially at the higher denominations of N500 and N1,000 banknotes. Although global best practice is for central banks to redesign, produce and circulate new local legal tender every five to eight years, the naira has not been redesigned in the last 17 years, he said.
Businesses, economy quake
The hardest hit by the policy have been the most vulnerable members of the population (the poor, the unbanked and the rural dwellers). Given the low levels of education and exposure of a significant number of Nigerians in this category, many of whom live in rural areas with inadequate or non-existent telecommunications infrastructure, a quick and seamless transition to digital payment channels was always unlikely.
The result of the cash crunch has been a significant loss of man-hours, logistics constraints to many businesses and individuals as cash became commoditised, hoarded by many and commanded outrageous premiums of up to 20 to 30 per cent at PoS outlets. For instance, Michael Osondu, an Abuja-based entrepreneur, said he paid N15,000 to get N10,000 cash from PoS outlet, even as many commercial banks rationed cash to their customers.
This was worsened by the cash withdrawal limit policy. Under the updated regime, the CBN said effective January 9, 2023, individuals and corporate entities can withdraw a maximum of N500,000 and N5 million, respectively, away from N100,000 and N500,000, respectively, which was previously announced on December 6, 2022. The ensued cash constraint and persistent scarcity of the redesigned naira notes, compelled consumers to prioritise spending on necessities, leaving many businesses, particularly small businesses, with decreased sales and heightened credit risks.
At present, many small business operators, customers and bank customers said they have not seen or even received the new naira notes for months. Mary Okonkwo, a Lagos-based entrepreneur said all the cash receipts for goods she sold came in old naira notes. All the cash I received for goods sold were in old naira notes and bank transfers. Sometimes, I wonder where the new notes are. This has affected our turnover, worsened cash crunch crisis and made payment for goods very cumbersome, she said.
Another bank customer, Michael Adebayo, said low cash position in many families made it difficult for them to buy food, clothing, and provisions, among others. We have seen many families cut their expenditure because o