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Why discord over Naira redesign may undermine economy

By Geoff Iyatse (Lagos), Collins Olayinka and Ernest Nzor (Abuja)
30 October 2022   |   4:32 am
The latest altercation between the Central Bank of Nigeria (CBN) and the Ministry of Finance, Budget and National Planning on redesigning the Naira has for the umpteenth time exposed the level of lack of coordination....

[FILES] A man exchanges Nigeria’s currency Naira for US dollars in Lagos, Nigeria. (Photo by PIUS UTOMI EKPEI / AFP)

• Naira Depreciation, Rise In Inflation Imminent —Experts
• ‘Incoherence Among Govt Agencies Common Under Buhari’
• Altercation Suggests No Working Relationship Between Monetary, Fiscal Authorities —Owoh
• FEC, Not President Alone, Should Have Approved It As HURIWA Backs Ahmed

The latest altercation between the Central Bank of Nigeria (CBN) and the Ministry of Finance, Budget and National Planning on redesigning the Naira has for the umpteenth time exposed the level of lack of coordination among critical arms of the national economic management team.

And for a federal government that rode to power with economic revitalization as one of its core themes, it also perhaps suggests why it has been at its wits end on how to stabilise the economy and, indeed, the value of the national currency.

Though the CBN Act grants the apex bank autonomy over monetary policy, experts have suggested that currency redesign, being a major decision with huge implication on the economy, the external sector, polity and other aspects of the country, should get the buy-in of the not only the minister of finance but the entire Federal Executive Council (FEC).

Recall that the Minister of Finance, Budget and National Planning, Zainab Ahmed, told the lawmakers on Friday that she was not consulted before the apex bank announced the plan and timeline for the redesign of the N200, N500 and N1000 bills.

In response, the CBN insisted that it followed the law and due process in carrying out the exercise, which is 12 years due.
Speaking with newsmen in Abuja on Friday night, the spokesman of the CBN, Osita Nwanisobi, expressed surprise at the minister’s claim, stressing that the CBN remains a very thorough institution that follows due process in its policy actions.
He said the bank, in line with provisions of section 2(b), section 18(a), and section 19(a)(b) of the CBN Act 2007, had duly sought and obtained the approval of President Muhammadu Buhari in writing, to redesign, produce, release and circulate new series of N200, N500, and N1,000 banknotes.

The spokesperson urged Nigerians to support the currency redesign project in the overall interest of the country, reiterating that some persons were hoarding significant sums of banknotes outside the vaults of commercial banks.

While assuring Nigerians that the currency redesign exercise was purely a central banking exercise and not targeted at any group, the CBN spokesman expressed optimism that the effort will, among other goals, deepen Nigeria’s push to entrench a cashless economy in the face of increased minting of the eNaira. This, he said, is in addition to helping to curb the incidents of terrorism and kidnapping due to access of persons to large volume of money outside the banking system used as a source of fund for ransom payments . 

But Godwin Owoh, a professor of applied economics with extensive research works in monetary policy operation across Africa, said the altercation suggests that there is no working relationship between the monetary and fiscal authority, insisting that heads of the two institutions ought to have deliberated thoroughly on the implications of the policy even before the CBN wrote the President.
The permanent secretary of the Ministry of Finance, Budget and National Planning is a member of the Board of the CBN, apparently to serve as the ear and eye of the Minister in the apex bank. The claim of Ahmed, if it true, could, thus, suggest two possibilities. First, the plan to redesign the highest three banknotes was not tabled at the board. If the first possibility is not true, then the representative of the fiscal authority at the CBN board is failing in his responsibility, hence the minister is not in tune with the policy direction of the apex bank.

Both possibilities, Owoh said, portend danger for the entire national economy. He insisted that no country issues banknotes without the full participation of the head of the finance ministry or treasury, arguing that, “currency issuance is more of fiscal than monetary operation in many countries.

“Currency redesign will incur a huge cost, which should be captured by the appropriation for next year. If the Minister is not aware, who prepares the budget and oversees its implementation? We should also remember that currency has implications for cross-border activities. It is not just a monetary operation,” Owoh said.

According to the economist, the request should not have been approved by only the President but by the entire FEC. He insisted that issues of national importance such as currency issuance are normally approved by FEC as the President does not represent the executive as much as FEC does.

“Recall that there is no law that says FEC must approve all contract issued by the Federal Government. It is done so that other members of the cabinet can make input in the process,” he noted, insisting that currency redesign is very sensitive matter that affects ministries.

Owoh was also shocked that the matter was tabled before the National Assembly whereas the Minister was expected to speak with the President and the matter resolved without the public even knowing about it. He said the public disclosure and condemnation of the decision were least expected and most embarrassing.

“Does it also mean the Chief Economic adviser to the President does not know about it? Does it also mean the Vice President, who heads the national economic team does not know about it?” the professor asked, insisting that every office that has something to do with the economy should have participated in the conceptualization of the decision.

Also speaking, a retired investment banker, Victor Ogiemwonyi, said the altercation “is coming at the wrong time” and may suggest a desperation to get the President’s attention. He called on the fiscal authority to fashion out policies to align with the needs of the economy and come to terms with the apex bank.

“The economic actors will be askance. Confidence in an economy means that the actors can predict fairly what is likely going to happen. The uncertainty will affect the economy negatively until the direction is clearly decided,” Ogiemwonyi stated.

In the view of Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, the submission of the finance minister is proof that the motives of the action are suspect. This is so, considering that the foundation of the acceleration of inflation in Nigeria, which the Governor has seen, cannot be sustained by continually raising the MPR to align the curve, he added.

He explained that the reason the total amount of naira notes in circulation doubled over the last 36 months is because of the sustained violation of sections 38 of the CBN Act on ways and means of lending that has seen overdrafts to the Federal Government rise from $450m, the approved limit, to $48bn which is the equivalent of N22trn.

Emmanuel added that the CBN Governor using the guise of attempting to curb terror financing, currency counterfeiting and reining in liquidity as a means to slow down inflationary buffers, validates assertions that he has admitted to the mistake of violating that window.

The Dairy Hills chief executive maintained that the primary reason for a rating downgrade, which has also impacted nine Nigerian Banks, including the Bank of Industry, is the flagrant abuse of rules and precedents as stated in the management of an independent institution like the CBN.

He submitted that the Minister of Finance is right to disown the actions of the CBN Governor, considering that the Permanent Secretary of the ministry of finance sits on the Board of the apex Bank.

However, Emmanuel held that the Minister should also be held accountable because it was under her watch of pursuing a fiscal strategy paper that relied on debt to fund budget deficits, that the government, embarked on a careless spree of violation of specific rules, as it concerns the duty of the CBN as a lender of last resort to the FG.

He disclosed that one of the unintended consequences of this move is the demand for the US dollar going up astronomically, leading to further depreciation in the naira, which raises the cost of importation for fuel oils, and food which are the leading indicators in the calculation of the consumer and cost price index.  

An economist and former General Secretary of the Nigeria Labour Congress (NLC), Dr. Peter Ozo-Eson, also said the altercations indicate there is no cohesion in government relating to major policies.  

However, he conceded that the law of the CBN gives it certain powers and that those powers are not exercised through the Ministry of Finance. He added that reining in stranded naira in unscrupulous people’s hands into the banking arena is a correct call. “When people do not locate cash within the banking system, that can be the avenue for criminality,” he noted.

Ozo-Eson further argued that on the cost-benefit analysis, there is a short-term shock on the foreign exchange market like what is happening now, particularly in the parallel market, for dollars caused by those holding huge chunks of naira and do not want to go through the banks so that they are not traceable. 

On timing, he noted that there is never a good time for policies of this type, saying the country needs to get it done and move ahead. He also pointed out that disagreement between the Minister of Finance and CBN governor over the matter is not surprising and also occurs in developed climes. “It is just that the way it has played out in public is rather unfortunate.”

Ozo-Eson observed that President Buhari’s government has recorded much incoherence among agencies such as security agencies, which work at cross-purposes sometimes.

Dr Chuiwaike Uba, an economist, also weighed in on the matter, saying that the disconnect between Nigeria’s fiscal and monetary authorities is not new. “In fact, the disconnection between the two institutions was one of the bases for the granting of autonomy to the CBN by the CBN Act, 2004. Unfortunately, the referenced act has not been able to address this problem completely because in granting autonomy to the CBN, the act failed to make specific provisions on the relationship and the need for collaboration between the authorities.

“The Vice President, Prof. Yemi Osinbajo once accused the CBN of working without consulting other MDAs, in particular, the Ministry of Finance. The removal of 41 items from participating in the interbank foreign exchange market was one of such unilateral decisions by the CBN in spite of its fiscal implications on the economy. It is also alleged that the CBN intervened directly in the MSME sector without consulting the Ministry of Finance and the Ministry of Industry, Trade and Investment. The lack of coordination has resulted in inadequate monitoring and evaluation of some of these interventions and, in some cases, the failure of the government to achieve its fiscal and monetary goals,” he said.

Uba contended that the autonomy of the CBN in no way suggests that it should not align with the fiscal authority and other government bodies. He noted that it is almost impossible to separate monetary policies and banking regulations from fiscal policies and their implementation.

“The basic functions of the CBN cannot be carried out without the Ministry of Finance, which is in charge of the national budget. And if for any reason the CBN works without the required alignment with the fiscal authority and other MDAs, it would only amount to winning economic battle, while losing economic warfare. Thus, the CBN is not expected to make policy decisions that affect the economy without input from the Ministry of Finance,” he added.

Uba advised that in addition to the existing coordination institutions, such as the Monetary Policy Committee and the Central Bank Board, a high-level coordination structure should be established. The coordination structure, according to him, will facilitate meetings at the level of the Minister and Governor of CBN to ensure fiscal and monetary policy coherence, without compromising the CBN’s operational independence.

Vice Chairman of Highcap Securities Limited, David Adonri, on his part, also noted that Federal Ministry of Finance and CBN are expected to work harmoniously in policy formulation and implementation. He observed that any discord between these authorities is detrimental to economic management.

“Before any policy is formulated by any of them, there ought to be in-depth consultation between them and thorough analysis to know the sensitivity on either side of the economy. In this particular instance, the reasons for changing of currency by CBN are justifiable but there is no reason for not carrying Finance ministry along for them to be prepared for the change. Where the monetary authority is independent which we clamour for, the Central Bank does not even require permission of the President to undertake any monetary action. Independence of a Central Bank is essential so that monetary policy will not be influenced by political expediences.”

Meanwhile, Human Rights Writers Association of Nigeria (HURIWA), yesterday, backed the Minister of Finance, Budget and National Planning, Zainab Ahmad, who warned of “serious consequences on the value of the naira against other foreign currencies” if the Central Bank of Nigeria continues with its plan to redesign the N200, N500, and N1,000 notes.

HURIWA’s National Coordinator, Comrade Emmanuel Onwubiko, in a statement, described the planned redesign of the three banknotes as a money-guzzling gambit that will tumble the value of the naira and further destabilise the economy.

The group said the CBN Governor, Godwin Emefiele has again proved his incompetence through the sham plan best described as motion without movement.