To avert another currency squeeze, financial crisis - THE GUARDIAN
The pronouncement of the Supreme Court last week extending the validity of both the old and the new Nara notes as legal tender until further notice should provide some relief to anxious Nigerians who are already lamenting the scarcity of naira notes as reported in parts of the country. But the court pronouncement alone will not prevent another round of naira crisis in the country unless the Federal Government, through the Central Bank of Nigeria (CBN) moves earnestly to ensure adequate supply.
The Supreme Court, on Wednesday, ruled that the old Naira denominations of N200, N500 and N1,000 notes continue to co-exist with the new notes till further notice. The court maintained that the old and new notes should remain as legal tender beyond December 31 until the Federal Government puts a process in place for their replacement or redesign after due consultation with relevant stakeholders.
Since last month, residents of Lagos, Abuja, Kano, Jigawa, Adamawa and other major cities have been unable to withdraw huge cash from banks, some of which had confessed that they did not have enough in their tills, an awful reminder of the bitter days of currency swap under former Governor of the CBN, Godwin Emefiele. Presumably, fears that the old December 31, 2023 deadline for the crunch. But it will be presumptuous to think that merely extending the deadline indefinitely would reverse the situation to normalcy.
While clarifying that the old notes would remain in use ad infinitum, the apex bank explained that the seeming scarcity in some locations was due to large withdrawals from the CBN branches by Deposit Money Banks (DMBs), which was done in a panic mode at Automated Teller Machines (ATMs), in anticipation of the now defunct December deadline for use of the old notes. Nevertheless, there is no excuse to subject citizens to another round of currency scarcity in whatever guise.
That assurance by the CBN, that it has enough stock of currency for financial transactions came a bit late to sufficiently assuage citizens’ concerns and apprehension. The anguish that was experienced in the last quarter of 2022 and early 2023, when the CBN embarked on the excruciating currency swap and printing of new notes is still fresh and citizens are mindful not to go through that route again, hence the panic.
The CBN had sufficient time to have envisaged citizens’ apprehension as the Supreme Court order of March 3, 2023, that extended the validity of the old notes as legal tender till December 31, 2023 drew to a close. A timely intervention could have addressed concerns regarding currency squeeze, avoidable speculation and panic withdrawals.
Regrettably, the Federal Government has also been tardy in resolving the currency crisis that has lingered for one year. It was only last week that the Federal Government returned to the Supreme Court, to ask for an extension of time for the old notes. That is the right thing to do as it supersedes the mere pronouncement of an extension by the apex bank without any legal backing.
The Federal Government pleaded that because of the economic crisis in the country, it has not been able to print the volume of new notes that would justify the phasing out of the old currency notes before the end of the year. Government added that should the Supreme Court reject its request to extend the period of circulation of the old notes, the country stands the risk of repeating the financial crisis that was witnessed during the period of currency redesign/currency swap policy of the CBN under Emefiele.
It is worth recalling that in October 2022, Emefiele as then CBN Governor announced the apex bank’s plan to redesign and circulate a new series of three banknotes out of the existing eight. The redesigned notes- N200, N500 and N1000 notes were due for circulation on December 15, 2022, while pre-existing notes would remain legal tender until January 31, 2023. The CBN gave the reason for that policy as persisting concerns with the management of currency in circulation, especially those outside the banking system.
Five months later, citizens were ordered by the Supreme Court to return to use of the old notes side by side with the new notes until December 31, 2023, after 10 state governors approached the apex court to nullify the policy of currency redesign/currency swap as it afflicted citizens with untold hardship.
There is a lesson here for the Federal Government and the CBN to henceforth think their monetary and fiscal policies through before embarking on implementation. The haste and manner policies were introduced at the tail end of the President Muhammadu Buhari administration, in the midst of preparations for general elections, which betrayed a disconnect between policy, the law and the citizenry. It also smirked of mischief and how not to personalise state affairs.
The government misled itself to allow politics to interfere with a policy that should be guided by law. The Supreme Court declared the policy inconsistent with the provisions of the Constitution of the Federal Republic (1999). It declared that the three-month notice given for the implementation of the policy did not satisfy the condition set out in Section 20(3) of the CBN Act, 2007. It also declared that the president cannot unilaterally give a directive to embark on the demonetisation policy pursuant to Section 20(3) of the CBN Act, 2007, in view of Nigeria’s fiscal federalism, the economic interests of the constituents of the Federation and without consultation with, and advice from the states (plaintiffs) individually, and in their capacity as members of the National Council of States and National Economic Council; and that the directive cannot be given without consultation with, and advice from the cabinet, the National Security Council and other stakeholders.
The CBN and the Federal Government also ignored their inherent lack of capacity to invest in printing sufficient new currency notes. They neither had the technical capacity nor the resources, as it turned out.
Despite the validity bestowed on old and new naira notes, the government should know that it is untidy and unwholesome to have different colours of same denomination currency in use at the same time. The new notes do not appear healthy to withstand the rigour, including abuse, that they go through with cash-minded Nigerians, while the old notes are worn out and weather-beaten. Something decent and urgent should be done to revamp the image of Nigeria’s legal tender.