Currency swap: How not to run a country
President Muhammadu Buhari-led administration has a duty to apologise to Nigerians for the failure in implementing the redesign policy of the naira and swapping old currencies with the new N200, N500 and N1000 notes. The government has an even more sacred duty to apologise for the unprecedented, horrendous hardship it has needlessly brought on the citizenry. And the government must accept full blame for standing governance on its head and spearheading deep conflict within the federation, as manifested in the dissonance in the president’s directive to Nigerians to spend only the new notes (notwithstanding their unavailability) except the old N200; vis-à-vis the directives of many state governors asking their citizens to spend and accept both old and new notes, in accordance with the order of the Supreme Court delivered on February 8 and reiterated on February 15, 2023. The ensuing confusion has left no citizen in any doubt of President Buhari’s lack of grip on effective governance. In the tardiness of his government, even the simplest of policies tend to turn sour and distasteful because of horrendous execution. The current monetary policy failure is the latest indication of Buhari’s refusal to learn from past errors. While currency redesigning may be well-intentioned, especially against vote-buying ahead of the general elections, handlers miscalculated the overarching effect on the masses and ran afoul of the common good of the country.
Across the board, Nigerians are in dire straits. But with restiveness mounting in cities and governors’ daggers drawn with the presidency to cook up a constitutional crisis just days to presidential elections, there is a growing apprehension that the avoidable crisis might be tailored at disrupting a seamless transition in May – beginning with the general election. And this is why all well-meaning Nigerians should be wary of the confusion and refrain from giving in to the devious plot. As far as this episode has shown, the general public can see through the veil that neither the president, nor the governors, lawmakers, politicians, nor even the Central Bank’s leadership has the peoples’ best interest at heart. Thus, amid biting socio-economic realities, the general public should stay focused on having credible elections.
Ab initio, the currency swap policy just weeks to general elections is wrongheaded. When the Central Bank of Nigeria (CBN), led by Godwin Emefiele, rolled out the currency swap plan for N1000, N500 and N200 currencies, this newspaper had warned early November that the programme was too hasty, ill-advised and designed to boomerang. It will be recalled that the CBN had deployed the unease with substantial currency holdings outside of the banking sector and the purportedly detrimental effect on the effectiveness of monetary policy to support that decision. Additional justifications included a desire to strengthen its cashless policy and a determination to use more recent developments in currency production to reduce instances of currency fraud. The CBN added that while it was customary for central banks to redesign and issue new currency notes every five to eight years, the Naira had not undergone such a change in the preceding 20 years.
But as Nigerians had suspected and later confirmed by Buhari, the banknotes’ charade was also politically-motivated to deter moneybag politicians believed to have starched away enough cash to buy victory at the poll. In his national address to the nation and in reference to the February 25 elections, Buhari said: “I am aware that this new monetary policy has also contributed immensely to the minimisation of the influence of money in politics. This is a positive departure from the past and represents a bold legacy step by this administration, towards laying a strong foundation for free and fair elections.”
As Buhari said and granted that the huge volume of banknotes outside the banking system was hurting the economy, coupled with the imperative of checking inflation, banditry, ransom-taking and the political class (to justify immediate mop up of N2.1 trillion, being 80 per cent of funds outside the banks), at what cost are all these to the average Nigerians who are heavily dependent on cash-transactions daily? Contrary to the claims by Buhari and Emefiele’s CBN, there is sufficient evidence to support the primacy of cash transactions to the Nigerian economy. The informal sector accounts for more than 84 per cent of employment and close to a third of domestic output. Without cash, the economy is grounded and typical of the hell average Nigerians have witnessed in the last couple of weeks.
Right in the middle of the lingering fuel crisis that has refused to thaw for three months, Nigerians were shell-shocked to find cash gone scarce. Cashless and electronic banking had never been perfect; they literally went berserk with all manner of malfunctioning and conflicts between buyers and sellers in major cities. Contrary to Emefiele’s assurance on sufficient supply of the new notes, most banks have little or nothing to give its customers. Nigerians could sense something sinister in the entire arrangement. Here is a vicious system that has mopped up the old currencies, but failed to give new ones in return. The relationship between banking institutions and customers is a contractual agreement. How tenable is the scenario that monies freely deposited in banks have become inaccessible at banks, but now offered at exorbitant black market rate through the Point of Sale (PoS) merchants? People in the cities can tell how hellish the system has turned in the last couple of weeks, not forgetting that the majority of Nigerians live in the interior, without online or onsite banking, and in quandary. How insensitive and wicked can a government get?
The unnecessary anguish, compounded misery, frustration, protests, arsons, and general instigation of anarchy should have been avoided where both the presidency and the Central Bank are more discretional. Based on economic data, this newspaper had warned that the end-goal of currency swap defiled good logic. Indeed, there should have been no worry about the amount of money outside the banking system being at 85 per cent when the ratio of money outside the banking system to money in circulation has been consistent at over 80–90 per cent during the last 20 years.
Additionally, the proportion of currency held outside of the banking system to broad money (referred to as M3 in Nigeria) has been dropping from as high as 20–30 per cent in the early 2000s through the decade and finally to 6.5 per cent by the end of September 2022. This downward pattern is mostly a result of more people using electronic banking and other segments of the banking system. In fact, there was N18.7 trillion in total demand deposits in the banking industry. The CBN’s concern that the NGN2.73 trillion outside the banking system was somehow harming monetary policy more than the N18.7 trillion in demand deposits would therefore seem perplexing notwithstanding these developments.
As it is, cash in circulation does not necessarily fuel inflation, which the Central Bank under Emefiele has consistently mismanaged. One of the most effective tools to tackle inflation is the benchmark rate. Through his arbitrary debiting of banks to meet his equally arbitrary sense of banks’ cash reserve ratios, Emefiele has severed the transmission lines that connect the Central Bank’s monetary policy rate (MPR) to retail rates in the financial services sector. By tackling inflation through the backdoor channel of currency mop up, CBN has negatively slowed inflation because the people have no money to spend even on basic needs. But that is a pyrrhic victory that is simultaneously chewing up the economy with Micro, Small and Medium Enterprises (MSMEs) worst hit.
To be continued tomorrow.