The currency crisis

If the Central Bank of Nigeria (CBN) had thought its currency redesign policy was purely economic, it must have seen how wrong that was and formed another view of the whole affair by now. The controversial policy is more political than economic. Unless he lives in fantasyland, CBN Governor Godwin Emefiele who is its arrowhead must see what perfect storm he has led this country into – and that at an inauspicious time, namely on the cusp of a momentous general election. Amidst the hailstorm of ensuing challenges, there have been quick taps by ‘Brother Mefi’ on the reset button. But the ‘exit’ button seems out of contemplation unless policy masterminds sacrifice one of its primary objectives. In other words, they are stuck between the rock and a hard place; and so are we all.

When Emefiele announced the decision to redesign the N200, N500 and N1000 denominations mid-October, last year, he presented the measure as an ambush policy of the apex bank to rein in some three trillion naira circulating outside of the banking system and glutting the economy with rogue liquidity. Such liquidity was deemed responsible for, among others, unbridled inflation, vaulting rates of foreign exchange and criminal activities like kidnappings, for which ransoms were being paid in cash by distressed relations to rescue their loved ones. An integral component of the currency redesign policy, as announced, was a new regime of cash withdrawal limit initially set at N100,000 per week for individuals and one million naira for corporates effective from 9th January, but which under intense pressure was reviewed to N500,000 per week for individuals and five million naira for corporates. In line with its cashless policy, the central bank obviously had hoped to inject less volume of cash into back circulation than was pooled into the vaults through currency swap.

But there’s a more fundamental though less avowed objective of the whole policy exertion. The timelines set for its key features – the cash withdrawal limit and expiry of old notes – to take effect were apparently aimed at short-feeding cash supply as could be used by political actors to influence the 2023 polls fixed by the Independent National Electoral Commission  at 25th February for the presidency and national assembly elections, and 11th March for governorship and state assembly elections. Much as Emefiele postures as the face of the cash swap policy, this objective goes beyond him and he is only an implementor. In a media interview he granted early last December, a clip of which lately circulated again online, President Muhammadu Buhari said the policy was aimed at creating a level playing field for political gladiators. Asked if there was no going back despite challenges being encountered, he affirmed accordingly, saying “nobody will be allowed to mobilise resources and thugs to intimidate people in any constituency.” Mr. President indeed made the point in that interview that this is one thing he would want to be remembered for. You could bet, therefore, that the initial 31st January deadline for expiration of the old notes and the tokenistic extension recently to 10th February were targeted at pegging the volume of cash circulating in the economy before the elections kick in.

“Emefiele apparently thought the banks were all he needed to carry through with his sleigh of hand. How wrong he was!”

     

So, Emefiele was not taking on just economic forces but much more political ones with the currency redesign policy. But since the new denominations came into use last November, most Nigerians have had a difficult time laying hands on them. When he unveiled the policy, the central bank boss had projected that the economy would be progressively awash with the new notes as the old notes get retrieved into bank vaults to the point of extinction by the expiration deadline. Things haven’t worked out by a long stretch, however, in line with that projection. At the initial stage, some grassroots economy operators rebuffed the new notes when offered for transactions by few Nigerians who managed to get possession. Then as the deadline for expiration of old notes wore on, there has been a stampede for the new notes by many citizens; but the notes are simply not available from money deposit banks where they ought to be accessed and where CBN says they’ve been amply supplied. The banks were mandated by CBN to dispense only new notes through their Automated Teller Machines (ATM), but those machines have been inactive in many places, while in others they kept dispensing the old notes.  Meanwhile, whereas most Nigerians can’t get the new notes from officially designated sources, visuals have emerged showing vanity fairers luxuriating in the  pastime as they spray same item with abandon at parties. Those vanity fairers obviously got the new currencies from same banks that can’t find enough to disburse to legitimate customers.

Emefiele apparently thought the banks were all he needed to carry through with his sleigh of hand. How wrong he was! It was sheer naivety he betrayed by decidedly keeping the political class at bay, although that might be because the political class is one of the primary targets of the policy. And so, other than enjoying the personal confidence of President Buhari, the central bank boss has treated political office holders as suspects rather than potential allies in implementing the policy. Even when the Nigerian Governors Forum empaneled  some of their own led by Anambra State Governor Charles Soludo – himself a former CBN governor – to work with him in steering policy implementation, the initiative tanked because Emefiele apparently wasn’t interested. And that was against the backdrop of bitter complaints by some governors and other political representatives that their people lacked required access to banking facilities where they could exchange their old currencies for new ones. Among others, Borno’s Governor Babagana Zulum ordered emergency establishment of micro-finance banks in some council areas of his state to afford the residents such access. At the weekend, state helmsmen on the platform of the Progressives Governors Forum made a bullish case to President Buhari that the currency crisis poses a threat to the ruling party’s chances at the imminent polls. The president responded with a plea for a seven-day grace period to sort things out.

It is further indication of naivety on the part of ‘Brother Mefi’ that he didn’t anticipate the possibility of industry sabotage of his pet policy, or he was simply too blinded by extra-economic objectives to proactively take all possible scenarios into account. Bank operators, generally speaking, are capitalists and have never been famed for sacrificial pursuits. Many apparently saw an opportunity to maximise returns by diverting available new notes to currency speculators, thereby spawning a breed of opportunistic profiteers in money agents and hawkers. Some bank chiefs argued that they have not been receiving the same volume of new notes as the old notes they returned to the CBN; but you could counter-argue that they should never have expected the same volume in view of CBN’s cashless policy and the new withdrawal limits regime. Besides, what regular customers aren’t getting from the banks is what currency speculators are getting aplenty. Not that we haven’t always had currency hawkers who traded in crisp notes for vanity value before now because banks kept reinjecting weather-beaten notes into circulation rather than replace with new currencies sourced from the apex bank. The exploitation is peculiarly vicious this time because the new notes are generically crisp, being just fresh off the mint for national usage; what the hawkers are trading in is demand necessity and not vanity value as before. And with banks not readily paying out the new notes, they made the citizenry a captive clientele for opportunistic profiteers.

The tragedy of Emefiele’s exploits is his betrayal by the banking system on which he had anchored a policy that is apparently targeted at curtailing cash supply to the political class. He has been forced onto rapid somersaults, but with no concrete relief yet for the citizenry. Although banks have now been mandated to pay N20,000 to respective customer over the counter, few customers had been able to access that option as at the weekend. Also at the weekend, the central bank boss announced a recalibration of policy implementation guidelines: he said more paying agents were being recruited while micro-finance banks were being brought in as primary players. But you could yet see a bullheadedness about streamlining cash supply before the elections. Emefiele insisted there will be no further extension beyond 10th February for expiration of old notes, and that the cash withdrawal limit will be eased in the course of time but not immediately. Well, since he has his target apparently defined, he had better get his supposed allies – the banks – into compliance mode so that relief can come urgently to ordinary citizens.