BY VICTOR OGIEMWONYI
Victor Ogiemwonyi, a retired investment banker, sent in this contribution from Ikoyi, Lagos. He can be reached via comment@businessamlive.com
The recent Central Bank of Nigeria (CBN) naira redesign and currency swap policy was controversial from the very beginning as it divided commentators and analysts. The whole country was talking about it. While many were willing to give it a chance, most saw the policy as more political than economic, others however, including this writer, saw it as a reset for the CBN.
The apex bank admitted upfront, when they put out the intention of this policy, that they have lost control of the currency in circulation, with up to 80 percent of the currency in circulation outside the banking system.
For this writer, this was a good enough reason to give the policy support.
It was thought that the large cash in the system has implications for inflation, and also thought to be the major fuel for much of the corruption we see around us, and the kidnapping business that has grown in leaps and bounds in recent times. It was also seen, to some extent, as a way to reduce the vote buying tendencies of our politicians.
No matter what side of the debate you are on, no one foresaw the large-scale mismanagement and the widespread suffering that this policy is now creating, except for a fellow on one of my forums, who warned that there was confusion ahead. He stated this in reaction to my write up in support of the policy.
I give him credit for his prescience, but even then, he could not have predicted the level of dislocation this was going to cause. Some of the scenes on social media, clearly depict all the suffering and associated problems this has engendered.
Adding to the chaos, are conflicting court decisions, policy challenges and litigations. It is taking us back to 1993, when the Supreme Court in Nigeria said they have no jurisdiction in the Abiola matter. The rest is history as they say. If that decision had been otherwise, Nigeria may have taken a different trajectory.
We are again seeing a situation where the highest judicial officer in the land, the attorney general (AG), says the Supreme Court has no jurisdiction to intervene in the matter. What is the import of the AG’s statement? We are not yet sure of what that means. Does that mean the government will not obey the ruling? And what will be the implication of that? Is the Supreme Court no longer the final say in any judicial matter in the land, no matter how ridiculous, their position? Are we not heading for anarchy with this posturing? I think we should obey the Supreme Court, no matter what the technical legal position might be.
This was more a social ruling needed to give respite, in the midst of the confusion and the suffering all around. What is legally right, at this point, has to take everything happening into consideration. The confusion the CBN has caused by their mismanagement of the currency swap policy, can only be remedied by a temporal halt on the deadline for the old notes to remain legal tender. The fact that the new notes are not available and may not be massively available in the few days left, means that unless there is a shift in the position, the crisis and suffering will continue and the economy will take a huge hit, and may even lead to another recession, something we cannot afford right now. The economy is already in trouble, any recession will have very bad implications for a long time to come.
The amazing aspect of this mismanagement, is the fact that all the information we are now getting was available to the CBN to plan with. The CBN knows there is a large population of the unbanked, they know the telecom infrastructure is already stretched, and that a large demand on its services at this time will create more problems. We have seen how overwhelmed the system has been in the last few days. Those who wanted to bank on their phones were unable to do so. The CBN knew the capacity of our Mint, and should have made adequate preparation to match the capacity, with the expected amounts of the new Notes to be swapped.
The information that the Mint does not have sufficient papers to print the new notes has since been denied by the CBN. The CBN should have been prepared to match the printing of the new notes with the amounts the banks were taking in, in old notes, in real time.
In today’s world of instant data availability, the CBN was in a position to get reports from banks that could have aided the Mint in reacting to the demand for the new notes, to continuously match what the banks were taking into their vaults daily.
If the information that only N500 billion was available on the day of the first deadline, to replace over N2 trillion of the old notes the CBN said was already with the banks, then they are responsible for this manufactured chaos.
There is no way to explain such bad planning. It was also bad planning, that no special arrangements were made for the large unbanked population, those without bank accounts, estimated at 66 percent of the population, as put out by some media outlets. That they were not taken into consideration in CBN planning is ridiculous. The fact that only nine percent of the population use digital banking outlets, makes arrangements for special outlets to be even more important. Setting up several cash points in every local government area (LGA), especially those that have no bank branches, was a necessity. Even in the 1984 currency swap exercise, which was also very difficult to manage, there were opportunities for the rural populace, who had no banking facilities to go to their Local Government offices to make a swap of their old notes. Why did the CBN not even think of this? Instead, it refused completely, to learn from history.
The emergency recruitment of 400 POS operators was an afterthought, and would have worked better, if this was all part of the strategy to give the unbanked population the opportunity to use this outlet.
The initial instructions to banks to restrict their disbursement of the naira cash, via ATMs only, was also a bad strategy. No one knows what that was supposed to achieve. There are not enough ATMs as it were, and most work badly, most times; relying on this for wide distribution was a one way thinking, to fight the black money in the system and slow politicians from having money available to buy votes. This thinking, completely forgot, the economy was a much bigger deal to worry about.
The statement credited to the CBN Governor, that they did not anticipate the challenges and the ensuing crisis, is a clear indication, they did not do any impact assessment. That again is unforgivable. Public policy options that will affect everyone in the country needs proper assessment and the impact measured, to give policy makers proper preparation, against all what ifs, and alternatives put in place. Let’s hope this will all be sorted out quickly as these mistakes were avoidable.
Notwithstanding this huge disruption to our lives and the impact it will have on the economy, there are still some benefits that are derivable, when it all unfolds.
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