Operator seeks review of naira redesign plan

Expert and Chairman of AACS, a management consulting and policy formulation firm, Dr Ayo Abina, has advised the Central Bank of Nigeria CBN to review its naira redesign exchange period from 90 days to 45 days for all amounts in excess of N500,000.

It also advised that the central bank to allow bank customers depositing below N500,000 to run for an extended period of a minimum of 120 days.

Abina claimed this would help to reduce the disruption to the exchange rate and support the ideals of the policy which he described as “good and necessary.”

In a fortnightly report released by the firm and titled, “The Currency Redesign Policy – The Good & The Ugly,” Abina gave four reasons to support the apex bank’s move to redesign the banknotes.

He said, “It mops up the huge amount of cash that is out of the banking system, currently estimated at N2.73trn or about 85 per cent of the total cash in circulation. This is totally bad for monetary stability.

“This policy rids the economy of a lot of ‘black money’ and helps to improve the health of the system and strengthen security, as regulators can monitor funds flow better.

“It deepens financial inclusion by getting most people into the banking system, a sine qua non to improving credit in the system and expanding productive activities. It will usher improved cashless policy, and tighten the money supply, which combats inflation.”

He, however, noted that though the policy would be of immense benefit to the country in the long run, “there are short term unintended ugly consequences, chief of which is now manifesting in the depreciating value of the naira, as the unbanked excess cash in the system chases scarce dollars. Parallel markets at the weekend hovered around N820 and N850, close to a 20 per cent depreciation within one week, and the prognosis is that this would continue in the short run.”

The analyst added, “The CBN could have managed the policy better by reducing the time frame of the old notes exchange from 90 to 45 days for all amounts in excess of N500k, to ensure that black money does not destabilise the polity too much and allow exchange of retail amounts of less than N500k to run for 120 days.

“This way, retail cash in the hands of millions of Nigerians who do not have easy access to bank accounts or facilities, will have more time to get into the system organically. The CBN would also need to come up with more measures to tighten FX deposits into bank accounts and penalise attempts at ‘dollarising’ the economy if it must check the indiscriminate hoarding of dollars that hurts the value of the naira so much.”

Abina advised members of the public in need of foreign currencies to exercise restraint.

He said, “The present exchange rates are not driven by any real economic activity, but rather, it’s the scores of billions of naira not in the banking system trying to beat the currency policy. It is not sustainable, and clearly not real in value terms.”