Businesses stall, Nigerians in a lurch as currency redesign, cash swap go awry

BY ONOME AMUGE & CYNTHIA EZEKWE 

A supposedly harmless currency redesign policy for the Nigerian naira resulting in a cash swap programme implemented by the Central Bank of Nigeria (CBN) turned into a full blown crisis  that came to a head in the last seven days as scarcity and persistent difficulties in accessing the new notes led to disruptions in business and economic activities and the daily lives of Nigerians held captive by a policy the CBN assured would mop up illicit naira notes and promote a cashless economy.

The climax of the tension became apparent as the initial deadline of January 31, 2023 for people to turn in their old notes drew closer before the apex bank announced an extension by 10 days to allow Nigerians more time to change their old notes for the new designs.

But a survey by Business A.M. across various banks found that the situation has shown no sign of easing off.

Visits to ATM points at branches of First Bank, EcoBank, Access Bank, Fidelity Bank, GT Bank, Globus Bank, Polaris Bank, Zenith Bank, FCMB, and Keystone Bank, all located in the Oshodi-Isolo axis of Lagos all had one thing in common-  Failure to dispense cash.

Business A.M. also observed that banking halls were crowded as many  customers, who had exhausted the old notes in their possession, struggled to get cash, and continued to throng banking halls for limited cash.

Speaking to Business A.M., Saheed Dauda, a bank customer, lamented that it took him over two days of constant queuing at the banking hall before he was able to successfully get new notes over the counter.

“Though the CBN extended the cash swap deadline, we are still suffering to gain access to the new notes. A lot of us have been forced to leave our respective workplaces and businesses to queue at the banks for hours in order to beat the deadline,” Dauda said.

Voicing his helplessness over the inability to get any cash from the various ATM spots, Mfon Umoh, a vehicle spare parts dealer said he was in shortage of essential supplies which could only be gotten by cash.

Umoh further explained that attempts to conduct online transactions had been unsuccessful for days due to poor network and other technical issues from his financial institution.

Business A.M. also gathered that the cash crunch is  being felt by commuters who have been left stranded or forced to walk long distances to their destinations as the public transport system is largely dependent on physical cash transactions.

Also feeling the brunt of the cash squeeze are thousands of small business owners who rely heavily or solely on cash-only sales.

Maume Hunpatin, a cloth dealer at Oshodi market in Lagos, bemoaned that sales had been poor since the introduction of the new notes. In her words: “Many customers come to purchase cloth materials with old notes but I can no longer accept the notes because it is difficult to exchange them for new notes at the bank. The deadline is just a few days away and I am scared of accumulating old notes that would end up becoming worthless after Friday (the deadline date).”

Traders and customers in local markets such as restaurants and supermarkets have also been subjected to the agony of the cash scarcity which has led to a decline in sales and revenue.

Soji Emmanuel, a cashier at Super Saver Supermarket in Ajao Estate, Lagos, explained that cash is considered a safer way of transaction due to the recent rise in failed electronic transfers.

Business A.M. observed that many POS operators have taken advantage of the cash scarcity to exploit helpless customers. It was gathered that the operators charge as much as ten percent or more of the total value a customer withdraws. Prior to this period, the POS operators charged an average of N200 for N10,000 withdrawal. At the time of filing this report, a minimum of N1,000 was being charged for a N10,000 withdrawal.

A POS operator who spoke  on condition of anonymity, explained  that customers no longer accept the old notes after transactions. He stressed that getting access to the new notes has been a herculean task as they are forced to lobby and, if necessary, resort to offering tips to bank officials in exchange for the scarce notes.

Amid the confusion pervading the economic horizon, many Nigerians have described the  cash swap deadline as ill timed and hasty. Economic analysts have also weighed in on the issue.

Muda Yusuf, the chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), argued that the 10 days extension is grossly inadequate to make up for what he termed the “glaring shortcomings” of the CBN in the process.

The former director general of the Lagos Chamber of Commerce and Industry (LCCI), warned that failure to further extend the deadline for the currency swap could put the N100 trillion component of the national GDP at risk.

In a statement, Yusuf noted that the crippling of business transactions at the distributive trade end, amid the currency swap crisis, would not only undermine the trade and agricultural sectors but would have a knock-on effect on the manufacturing value chain and the services sectors.

This is because whatever is produced has to be sold, but the trading end of the chain has been greatly disrupted by the currency swap crisis, He explained.

Yusuf pointed out that the trade sector contributes about 14 percent of GDP valued at an estimated N35 trillion, while the agricultural sector contributes 25 percent, valued at an estimated N62 trillion.

The economist also pointed out  that  most of the activities in the aforementioned  sectors are either in the rural areas or in the informal sector of the economy.

“These are the sectors that have been driving the resilience of the Nigerian economy amid numerous domestic and global headwinds. Any policy measure that would negatively disrupt these sectors should be avoided,” he said.

Yusuf dismissed the CBN’s argument that currency swap would enhance monetary policy effectiveness and curb inflation, noting that it has no strong basis in economic theory being that money supply is a more critical variable in the inflation equation.

He recalled that total money supply in the Nigerian economy as at December 2022 stood at N52 trillion, while total currency was N2.6 trillion. In his assessment of the figures, he noted that cash as a percentage of money supply was only five percent, with the implication being that 95 percent of money is still within the banking system.

“It is, therefore, a gross misrepresentation to give the impression that 85% of money is outside the banking system. Currency is only 5 percent of money in the economy and should therefore not warrant the scale of energy and resources being dissipated around it. The focus of monetary authorities should be on regulating money supply, not on mopping up currency notes,” he said.

According to the CPPE CEO, a minimum of six months’ window ought to have been given for the currency swap exercise. This is said, in consideration of the country’s large population which stands at over 200 million; dominance of the rural economy; the huge informal sector; and the over 30 million unbanked Nigerians; and capacity gaps in the management of the process.

“The reality is that presently in many parts of the country, more than half of the currency in the hands of citizens are still old notes. And it is on record that the banks were still giving out old notes even a few days to the CBN deadline. The citizens should not be made to pay for the incompetence, inefficiency and ineptitude of state institutions,” he said.

He, therefore, called on President Muhammadu Buhari to, as a matter of  urgency, intervene in addressing the issue to save millions of Nigerians from the anguish and pain of the current stampede of currency swap inflicted by an unrealistic timeline and glaring incompetence of the CBN.

Yusuf maintained that the cash swap programme should be extended by a minimum of six months to allow for seamless currency swap by the populace.

Opeyemi Agbaje, founder/chairman, RTC Advisory Services Limited, a leading strategy, economy and policy, and business advisory services firm, elaborated the impact of the currency redesign on the Nigerian economy, in a report titled: “The Nigerian Economy: Impact of The Currency Redesign.”

The report is of the view that the currency redesign adds to perceptions of macroeconomic uncertainty at a period of macro instability and elevated political risk.

“We are not convinced that the case for currency redesign at this time has been borne out by our analysis; we believe the policy adds to perceptions of macroeconomic uncertainty at a period of macro instability and elevated political risk,’’ the report stated.

“Many of the possible benefits are debatable and the policy appears to have greater resonance as a political, security and anti-corruption policy rather than a cogent economic prescription; the timing just before general elections and the time frame to completing the currency exchange involves significant risk. It is difficult to see how currency redesign gained priority as an emergency economic or monetary policy measure,’’ the report further added.

Commenting on the factor of shortage of clean and fit notes, the report disclosed that the easier answer to shortage of clean and fit notes is replacement, not necessarily redesign of new bank notes.

Citing the 2020 currency operations report, Agbaje  noted that the bank spends as much as N58.6 billion per annum printing existing currency.

Narrowing it down to the factor of cashless economy and eNaira, the report noted that the perceived urgency of the policy implementation can not be associated with the objectives of the cashless policy and eNaira scheme.

“We agree that withdrawing current bank notes may provide the CBN an opportunity to formulate and implement regulations and strategies for deepening its cashless economy initiatives; we would however note that nothing about cashless economy and eNaira justifies the emergency policy posture at a time of political transition, high macroeconomic instability and a timeframe for implementation of six weeks,’’ the report stated.

The report, however, pointed out that security considerations can be aligned with the context around the CBN currency redesign project.

According to the RTC report, the presumption that many of the terrorist and banditry groups lack the network and organisation to transmit their cash holdings through the banking system may be debatable, as terrorists, crime syndicates and bandits appear to be organised crime networks with sufficient clout, network and ingenuity to exchange their cash holdings for new bank notes.

The report noted that the CBN’s policy considerations are expected to be primarily economic and not security or law enforcement although policy may be cognisant of these factors.

It also argued that  the currency redesign policy could actually contribute towards inflation where persons having large cash holdings deploy the same towards buying items that hold value over time.

“It is possible that some factors fueling inflation may be closer to “home” for the CBN-excessive deficit financing of government, including through CBN “Ways and Means” which is tantamount to merely printing cash; and subsidising exchange rate purchases in markets with multiple exchange rates,” the report added.

RTC Advisory also argued that the notion held by some people that the currency redesign could lead to lower exchange rate is fanciful and unrealistic.

“We  consider this notion fanciful and unrealistic! Even where cash is withdrawn into bank vaults, it could still continue to chase scarce dollars. In any event, developments post-announcement of the policy demonstrate that it has rather had a negative impact on exchange rates,’’ it stated.

Godwin Emefiele, the CBN governor, in his justification of the policy, noted that it was anchored on addressing several  factors which include, hoarding of banknotes outside bank vaults; worsening shortage of clean and fit notes; increasing ease and risk of currency counterfeiting aided by advances in photographic and printing technology; global best practice by central banks to redesign new legal tender every 5-8 years; deepen the CBN’s drive to entrench a cashless economy and support the eNaira; and  security considerations in relation to spate of kidnapping and terrorism vis-à-vis cash outside banks being used for ransom payments.

Reacting to the challenges encountered by Nigerians as a result of the cash swap policy, Emefiele called on Nigerians to be calm and adopt a good queueing system, assuring that the money will eventually go round.

Emefiele, in a recent special media briefing, said the CBN will work with banks to review PoS charges to alleviate the pains being felt by Nigerians who are charged exorbitant rates due to the scarcity of the new naira notes. He said the CBN would convene a meeting with bank CEOs, mobile money operators and telcos on how to address the POS charges, while promising to find a way to refund the charges.

He also pleaded for more understanding, noting that the apex bank is taking the necessary moves to ensure the currency gets into circulation.

“I understand the agitation and I’m begging in God’s name, we are on our knees begging people to please show understanding. They should be calm,” he said.