Currency swap: National security dimensions and legal perspectives

This article analyses the currency swap policy embarked upon by the Nigerian government on October 26, 2022, with circulation commencing on December 15, 2023 and an initial end date of January 31, 2023; related contextual issues, the merits and demerits thereof; the implications on national security and proffers pragmatic recommendations on a denouement.

Policy, within this article’s precinct, implies the deliberate actions of governments and the objective intentions underpinning those actions, which accord with the public interest.

Proceeding, my immediate thoughts and prayers are with all those who have lost loved ones and everyone affected directly or indirectly by the adverse impacts of the implementation of the policy. May the souls of the departed rest in perfect peace!

The explicit objectives of the currency swap or redesigned naira notes initiative are: to curb illicit cash flows outside the orthodox banking system; to stymie and or eliminate terrorist financing ditto ransom payments; to checkmate money laundering, proceeds of crime, all of which depend on imperceptible cash consideration plus, to reduce the 21.82% inflation rate (NBS). Other aims include enhancing security features, embracing the digital economy and technological innovation which entails reductions in cash payments and the associated transaction costs of cash handling, consistent with global best practice.

Ostensibly, these are absolutely noble objectives with unimpeachable legal foundations as contained in section 20 (3) of the Central Bank Act 2007. It confers the bank, upon the President’s direction and giving reasonable notice, with powers to call in old currency and coins, which shall cease to be legal tender, subject to the section 22 therein, which shall be redeemable by the bank. The words “shall be redeemable by the bank” upon its natural construction simply means that the old currency shall be redeemed by the Central Bank without much ado.

Turning to significant and enduring national security threats, cash consideration is the common denominator as regards terrorist financing including, but not limited to, weapons procurement, logistics, supplies and infrastructure. A similar modus operandi applies to ransom payments for kidnap victims whether in Nigeria or further afield. To illustrate, between December 2020 and March 2021 alone, terrorists kidnapped over 760 students from various educational institutions traversing northern Nigeria in at least five separate incidents.

In 2014, terrorists kidnapped 276 schoolgirls in the North Eastern district of Chibok in Nigeria’s North Eastern region. According to SB Morgen Intelligence, not less than USD 18.34 million was paid to terrorists as ransom by victims’ families and government between June 2011 and March 2020. The same organisation in its report entitled “The Economics of Nigeria’s Kidnap Industry” affirmed that approximately N653.7 million was paid in ransom in Nigeria between July 2021 and June 2022.

Equally, Control Risks, a global risk and strategic consulting firm, in 2021 projected that sub-Saharan Africa (SSA) will, maintain a dynamic kidnapping environment with regions like Nigeria, South Africa, Mozambique, The Democratic Republic of Congo and the Sahel, underpinning its vast rates given the highest number of extremist ethno-religious activities therein. Its regional survey within that period estimated a kidnap rate of 37% in SSA; 32% across the Americas; 21% in the Asia Pacific realms; 9% in the Middle East and North Africa; and 1% in Europe and in the Commonwealth of Independent States of eastern Europe and Asia. Plainly, statistics do not by any means constitute an exact science, nevertheless, they give a sense of the complexity, scale and statistical skew of the challenges confronting the world.

Against that backdrop therefore, if the Central Bank attempts to choke the heartbeat of terrorism – cash consideration – via currency swap and digital inclusion, is that necessarily a perverse objective? Does the Central Bank’s currency swap policy objective inexorably contravene the provisions of the section 14 (b) of the Constitution of the Federal Republic of Nigeria (as amended) viz – “the security and welfare of the people shall be the primary purpose of government”? What, if any, proper project management discipline was applied prior to policy launch? Were pilot studies, impact assessments, risk evaluations and mitigation strategies undertaken before the implementation of the policy?

Was any strategic priority accorded to a public consultation seeking to meaningfully engage citizens; as against a top-down notification informing Nigerians of a policy change? How then, was the stakeholder engagement strategy undertaken before, during and post hoc policy launch and what did the assessments reveal of the likely impact on various demographic segments of Nigeria’s approximate 220 million population (Worldometers)?

Did the scenario assessments reveal the likely impact assessments on the unbanked in rural areas? The unbanked in urban areas? The elderly? People with visual and other impairments? People without access to telephone and or internet banking? Law abiding libertarians who freely elect not to use traditional banks? The capacity of the Nigerian Security Printing and Minting Plc to adequately meet the demand for the new currency denominations?

These are huge questions the answers to which sharply split opinions amongst proponents and opponents of the Central Bank’s policy. That said, there are several non-contentious points.

First, the policy objectives are insuperable relative to seeking to curb terrorist financing and by extension terrorism, money laundering, illicit cash flows and corrupt practices.

Second, if the policy objective is to curb terrorism and terrorist financing, which has costs tens of thousand of lives over the last decade, and it is; self-evidently, the policy intention cannot logically contravene the provisions of section 14 (b) of the Nigerian constitution supra.
Third, there is scant evidence of a proactive public consultation which sought the views of citizens and which concurrently advanced a compelling business case for the policy change.

For example, the UK’s Bank of England in 2018, undertook a six-week public consultation, via the Banknote Character Advisory Committee, on the character to emblazon its new polymer £50 note. The bank received 227,299 nominations covering 989 eligible characters. In the end, Alan Turing, a leading WWII code-breaking scientist’s image was selected and is used till this day! The critical point being made is that the process was transparent and commanded democratic legitimacy. Could the same principle have been adopted by the Central Bank say? Afterall, by virtue of the provisions of 14 (2)(a) of the 1999 Constitution supra, “sovereignty belongs to the people of Nigeria from whom government through this Constitution derives all its powers and authority.” And, because sovereignty emanates from the people, there is a strong contention that the people ought to have been consulted in the real sense of the verb “consult” – which, according to the Merriam Webster’s dictionary means to; “consider”, “seek the advice or opinion of” and “refer to.”

Fourth, there is insufficient clarity of the findings, if any, stemming from the scenario assessments of the impact assessments of this policy intervention on the various segments of country’s demographic. For example, how accessible is the new currency to those in the hinterlands of Ajamogha, Funtua, Imoru and Malumfashi say?

Fifth, the evidence of extreme hardship which Nigerians are experiencing daily, across the length and breadth of the country, through the inability to access their cash from banks and or Automatic Teller Machines (ATMs); the insufficiency of the new currency denominations at banks; the inadequacy of the technological infrastructure to support the scale of demand for online transactions which, in 2021, rose to USD 3.2 billion (/Centre for Economics and Business Research/Global Data) and has, presumably, since compounded; the opaqueness of risk evaluation, mitigation strategies and impact assessment studies on various segments of the country’s population pre-launch, have, together, conspired, albeit unintentionally, to undermine the well-intentioned aims of the initiative.

To close, the policy intentions are sound however, the implementation has, by all balanced and reasoned assessments, been muddled. Banks’ staff have been attacked, physical assets destroyed and there is the risk of further civil disobedience. But then again, should the Central Bank buckle under pressure and jettison the policy given the enormous stresses it has yielded that’s compounded by socio-economic complexities of rampant fuel scarcity, multiple deprivation and poverty? The contention here is that the policy implementation should be continue to be urgently, realistically and sensitively adapted to ameliorate the pains of ordinary law-abiding people. In other words, the policy implementation defects are curable but not fatal!

The key recommendations therefore are to: (1) fundamentally address the root causes of insecurity and terrorism via the facilitation of credible employment and training programmes which have the potential to reduce the perverse allure of terrorism and banditry, in the country which has a 42.5% youth unemployment and 33.3% general unemployment rate;

(2) ensure that a robust business case measured against the parameters of strict adherence to agreed objectives, budgets, quality and fixed timelines consistently support policy formulation;

(3) ensure that effective project management capacity is developed across all public sector institutions because this will ultimately conserve taxpayers’ money;

(4) proactively, where feasible, engage the public in the policy development process because it is from the people that progressive democratic governments derive legitimacy not the converse;

(5) disincentivise terrorist financing and the kidnapping/ransom nexus payments via digitally trackable inclusion and incremental advances towards a cashless economy;

(6) tailor policy development to the unique requirements of each country because what works in country A, may prove to be completely unrealistic in country B.

The competing tensions of public consultation and democratic legitimacy on the one hand and objectively considered national security considerations of safeguarding intelligence, retaining the element of surprise in confronting terrorists and meeting the constitutional obligation of safeguarding the lives and welfare of people on the other hand; may, on occasions, tilt in the direction of national security.

The American writer, Dale Carnegie, sums it up nicely too: “most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all”!

Ojumu is the Principal Partner at Balliol Myers LP, a firm of legal and strategy consultants in Lagos, Nigeria.