Knocks, commendations as CBN extends deadline for swapping old naira notes
*Extension will reduce queues at ATMs, panic, uncertainty among SMEs-Prof Uwaleke
*10-day extension is grossly inadequate to make up for shortcomings-CPPE
*It is prudent for CBN to extend the deadline to April 2023-Prof Ukpong
MOTOLANI OSENI
Mixed reactions have trailed the Central Bank of Nigeria (CBN) decision to extend old naira use for transactions till February 10th, 2023.
Godwin Emefiele, the apex bank Governor, yesterday announced the extension after he has sought approval from President Muhammadu Buhari to extend the deadline for the use of the old notes by 10 days.
According to him, based on the foregoing, we have sought and obtained Mr President’s approval for the following: A 10-day extension of the deadline from January 31 to February 10 to allow for the collection of more old notes legitimately held by Nigerians.
“A 7-day grace period, beginning from February 10 to February 17, in compliance with Sections 20(3) and 22 of the CBN Act allowing Nigerians to deposit their old notes at the CBN after the February deadline when the old currency would have lost its Legal Tender Status” he stated.
Reacting to this development, Professor of Capital Market and former Head of Department, Banking and Finance, Nasarawa State, Prof. Uche Uwaleke, said the extension of the deadline for notes swap by the CBN till February 10, 2023 with additional 7 days grace period is a welcome development and portrays the CBN as a responsive organisation that is sensitive to the yearnings of Nigerians.
“One recalls that when the CBN first placed a cash withdrawal limit of N20,000 per individual per day, it saw the need to revise it upward to N100,000 following reports that the limit was too low and causing a lot of hardship to the people.
“This deadline extension will reduce the queues at the ATM, reduce panic and uncertainty among small business owners in particular and more importantly allow more time for the new naira notes to circulate and more of the old ones returned to the CBN given that about N900 billion is still outside the banks as revealed by the CBN Governor”.
He, therefore, commended the CBN for this move as well as the President for giving approval for an extension. “It goes to demonstrate that the currency redesign was not designed abinitio to foist hardship on Nigerians. The fact that the new deadline is before the February 25 election is laudable as the measure will help reduce vote buying.”
“Having extended the deadline by 10 days, the CBN should ensure that the banks are strictly complying with its distribution guidelines for new notes. It should equally, through sensitization efforts, discourage the current practice of rejection of old notes while they are still considered legal tender”, he added.
In his reaction to the CBN’s policy and the impact on Nigerians and the economy, the MD/CEO, Highcap Securities, David Adonri, pointed out that since beginning of last week, due to the impeding 31st of January deadline before the extension to 10th February that ATMs in Lagos have stopped dispensing old Naira notes and at the same time, no ATM in Lagos dispensed new Naira Notes.
According to him, many people have deposited their old notes in the banks to beat the 31st January deadline. Consequently, scarcity of cash has hit the economy in a very dangerous manner.
“With the rejection of old notes by transporters and traders, amidst absence of new notes, people’s purchasing power has crashed and revenues of businesses have plunged. CBN has put the economy in reverse gear by needlessly inflicting scarcity of cash on the economy and hardship on citizens.
“Due to unreliability of the virtual payment channels and costs incurred for money transfer, traders who accept transfer are adding a fee to the cost of merchandise to cover transfer charges. CBN appears to be on a misguided course that can trigger an uprising”, he explained.
He added that the economy is largely driven by cash and the seizure of depositors’ money, if continued after Tuesday, will cripple the economy when added to scarcity of fuel. There is obviously a clandestine motive that FGN is pursuing with this cruel action but the economic repercussions are very grave.
“With serious decline in aggregate demand caused by cash and fuel scarcities, the economy is being forced into recession. Even if the new notes come into circulation next week, incalculable harm has already been inflicted on the economy by CBN”, he said.
Also, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, on Sunday said the 10-day extension given by the CBN for the phasing out of old naira notes isn’t ‘adequate’.
In a statement on Sunday, Yusuf criticised the CBN over the numerous gaps identified in the implementation of its naira redesign policy.
“The CPPE believes that 10 days is grossly inadequate to make up for the glaring shortcomings of the apex bank in this process,” the statement said.
On his part, CEO Wyoming Capital and Partners, Tajudeen Olayinka, in an exclusive response to our enquiries, said that it seems that CBN is pursuing a lofty objective with its intention to redesign the Naira.
According to him, money in wrong hands takes wrong economic decisions distort the economy and fuel inflation. CBN simply needs to remove large chunk of money in wrong hands to eliminate or reduce distortions and arrest inflation.
He, however, believes that we will see more of the new notes in circulation, even though more transactions will be concluded online. The essence is to keep illegal money away from circulation.
“Since the primary objective of the program is not to stifle economic growth, government is expected to react appropriately to avert unintended consequences. My only concern is that an important aspect of the program is still missing, and that is my only grudge with CBN governor.
“When politicians and other economic agents begin to spend the money, it will circulate fast”, he said.
For the Dean & Professor of Financial Economics, University of Uyo, Prof Leo Ukpong said, “I believe it is prudent for the CBN Governor to seriously consider extending the deadline from January 31st, 2022, by at least three months (to expire by the end of April 2023).”
According to him, this extension is necessary to minimize disruptions to Nigeria’s economic and financial transactions. Clearly Nigeria is predominantly a cash base driven economy, especially in the larger urban and rural areas. Reduction in cash will result in a significant drop in traders’ income and economic activities across the country.
On the speculation that the large chunk of the new currency is in the hands of politicians and few Nigerians, he said: “I’m sure the obvious assumptions is that politicians will need the cash to expedite their political activities, prior and during the elections. In other words, there will be an increase in the circulation of cash during the election period; unfortunately such increase in cash supply will take some time before it could impact or reverse the economic damage caused by the shortage of cash.”
He, therefore, noted that the drastic reduction in the sully of cash from the economy will have a significantly negative impact on economic activities and create real hardship on most Nigerian citizens who depend on cash to conduct their business activities, purchase household needs, and going about from one place to the other. In my opinion, I think the policy is poorly timed and executed.
It is, however, worthy of note that before the apex bank extended the use of the naira note, many Nigerians experienced difficulty in lodging their old banknotes.
The scramble by many Nigerians to meet the initial January 31 deadline has been chaotic as many of them flood banking halls with huge cash in old notes to exchange them with new ones.
Others are seen in long queues at the few ATM points having the new naira notes in different parts of the country to have access.
Emefiele, therefore, believes that the new deadline would allow more of those in rural communities to exchange the old notes.
Meanwhile, the Nigerian naira claimed value amidst unmet demand in the foreign exchange (FX) market. At the investors’ and exporters’ foreign exchange window, the Nigerian naira was exchanged at N461.75 per the United States (US) dollar on Friday.
This represents a gain when compared with exchange rate of N462 reported at the window in the previous week. In the week, activities level improved by 2.6 per cent to $496.6 million over positive sentiment in the oil market.
Market data indicates that FX trades recorded in the official window were consummated within the N440.00 – N483.38 band. By consensus, analysts have projected the exchange rate to cross N500 in 20223.
In 2022, the naira lost about 11 per cent after the Central Bank of Nigeria devalued the local currency quietly in the last quarter of the year. However, due to a sustained rise in unmet demand, analysts said FX backlog continues to pile while manufacturers, importers and travellers turn their attention to the open market in the search for the greenback.
At the parallel market, the dollar depreciated 0.9 per cent against the priced currency to N750.00 following a record decline in external reserves, according to figures on the Central Bank of Nigeria (CBN) website.
Last week, Nigeria’s FX reserves declined by $122.34 million w/w to $37.07 billion on account of CBN intervention in the currency market. Cordros Capital analysts maintained that believe the FX liquidity issues will remain over the short-to-medium term, saying they do not see any positive signal that denotes an improvement in FX supply relative to the pre-pandemic levels.
At the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchained from the previous week as it closed the week at N445.
In the forwards market, the contract rate for the 1-month was flat at N479.76. However, there were depreciations recorded in the 3-month contracts, down 0.5 per cent to N488.83. Also, 6-month contracts decline 1.2 per cent to N506.47 while 1-year contracts depreciated 0.2 per cent to N532.70.
