Poor naira redesign policy cause of cash scarcity - Cardoso

Critical flaw in the implementation of the naira redesign policy is responsible for the prevailing cash scarcity, Central Bank of Nigeria (CBN) Governor Yemi Cardoso, said yesterday.

Cardoso acknowledged the “glaring defects” in various CBN policies and announced a comprehensive review initiative.

“We are taking a thorough look at all our policies implemented over time. This review aims to produce an elegant document outlining clear rules and procedures for navigating the Nigerian money market”, Cardoso told the audience at the launch of the World Bank Nigeria Development Update in Abuja.

Addressing the cash crunch plaguing Nigerians, Cardoso identified the poorly executed naira redesign as the primary culprit.

The apex bank boss said: “The apprehension surrounding the policy’s end date, well before the third quarter, triggered widespread hoarding. Many feared the old notes would lose legal tender status, prompting them to hold onto their cash.

Offering a glimmer of hope, the CBN governor said the Supreme Court’s recent ruling, upholding the validity of the old notes beyond the initial deadline, will alleviate apprehensions and incentivize individuals to release their hoarded cash into circulation.

On the current naira scarcity, Cardoso said: “Unfortunately, the history of that lies with the naira redesign policy and coming to the end of the year, way before the third quarter, there was a lot of apprehension with respect to where this was all going to end; and whether the old currency would no longer be good for legal tender and many started hoardings. This is really what happened. Happily, Supreme Court has decided that the currency will be valid post-end of the year.”

N3.4tr in circulation

Also yesterday, the CBN put the amount of cash in circulation at N3.4 trillion.

In a statement by its Acting Director, Corporate Communications, Mrs. Hakama Sidi-Ali, the apex bank said: “There is indeed an increase in currency in circulation. From N1 trillion in February 2023, we have seen a rise to over N3.4 trillion as of December 11, 2023. This demonstrates that enough cash is available, but unfortunately, it’s not circulating due to apprehension among some individuals.”

Acknowledging the challenges Nigerians have faced with previous and current cash shortages, Sidi-Ali emphasized the bank’s commitment to addressing the issue.

She said: “We empathize with the recent and past experiences of Nigerians. The CBN assures everyone that we have adequate cash to meet daily transaction needs, even during the upcoming festive season.”

She attributed the cash crunch to “hoarding of the naira by some persons due to challenges experienced during the naira redesign project.

“The CBN was monitoring the situation and had released sufficient cash to its branches across the country for onward distribution to Deposit Money Banks (DMBs).”

Sidi-Ali urged Nigerians to exercise patience while the CBN implements measures to ensure wider cash availability.

This includes ongoing efforts to improve cash distribution channels and address logistical challenges.

The CBN’s response aims to quell anxieties about potential cash shortages during the busy holiday period.

But, Point of Sale (PoS) operators in Abuja, have devised a method of sourcing for cash.

They now go to the market to buy cash from traders while they transfer the agreed sum into the traders’ bank accounts.

The operators have demonstrated the willingness to transfer any additional cost they may incur from the new approach to make cash available to their clients.

Other measures being taken by the CBN to combat hoarding and improve cash distribution, include the discontinuation of processing fee charges on deposits, to encourage the public to save the cash in their possession.

The CBN is now caught in a delicate balance between addressing currency security concerns and ensuring adequate cash availability for daily transactions.

The apex bank has been battling to address both points as well as trying to build trust in the Nigerian financial system.

Cardoso’s candid acknowledgement of the naira redesign misstep and his commitment to policy reform mark a significant shift in the CBN’s approach.

The planned review and the promise of clearer rules signify a willingness to address past shortcomings and chart a more effective course for managing the nation’s monetary system.