Nigeria’s New Naira to Fight Corruption and Insecurity?
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Last week, Nigerian President Muhammadu Buhari unveiled three new designs of Naira (the Nigerian currency) banknotes.?These new designs were applied to three denominations in circulation, specifically the N1,000, N500, and N200 banknotes. This move is part of the Central Bank of Nigeria's efforts to solve currency management challenges. ?Although only a few changes were made to the new banknotes, the apex bank has stated that the new banknotes will provide enhanced security, greater durability, attractiveness, and a showcase of the country’s rich heritage.
This move by the Central Bank of Nigeria (CBN), came as a surprise to Nigerians including the Minister of Finance, who was not apprised ahead of the currency redesign. In CBN’s view, this redesign is necessary to fight corruption and combat insecurity, which have adversely affected the Nigerian economy and the apex bank’s ability to effectively conduct monetary policy.
Another important consideration was the country’s upcoming general elections, an event that is typically fraught with various forms of fraudulent and corrupt practices. CBN claims these redesigns will allow the country to forestall money laundering and looting of public funds by outgoing public officers. Essentially, CBN believes that departing executive and congressional branch personnel will seek to loot and hoard public funds and this measure will be critical in preventing that. ?
Shortage of clean banknotes is another motivation for the redesign. In the second quarter of 2022 before the announcement of the currency redesign, the bank reported that 84.7 percent of the currency (N2.72 trillion out of N3.26 trillion) in circulation is outside the vaults of commercial banks across the country. ?CBN claims that this is likely due to hoarding of freshly printed notes by public officials. This absence of clean notes creates further issues, particularly an increase in the risk of counterfeit notes in general circulation in the country. ?
One final contributing factor to the redesign is the ongoing issue of kidnapping across the country. CBN claims that pushing new notes into circulation will disrupt both ransom demands and the activities of criminals in the underground economy.
In the coming weeks, the CBN plans to mop up all currencies held outside the banking system. The public has been told to deposit all current denominations of the N1000, N500, and N200 banknotes to their local banks by January 31, 2023, after which they would cease to be legal tender. The CBN believes this will help rein in inflation, improve monetary policy implementation, guarantee the accuracy of monetary statistics (e.g., money supply), increase financial inclusion while moving towards a more cashless economy, and principally contribute to the fight against money laundering, corruption, and insecurity across the country.
A month since the CBN announcement, no individual has been arrested or prosecuted by anti-graft agencies like the Economic and Financial Crimes Commission (EFCC), and the Nigerian Financial Intelligence Unit for money laundering and looting of public funds, even though there are several videos circulating on online platforms, showing people with bags of cash in Naira.
Evidently, to achieve the objectives of this Naira redesign, the CBN needs to coordinate with the EFCC and the local banks to ensure people who deposit current denominations at the local banks do so in full compliance with the Anti-Money Laundering/Combating the Financing of Terrorism regulations on the reporting of currency and suspicious transactions. Looking forward, the CBN needs to be more proactive in policies to prevent money laundering and hoarding of the Naira. These could include stricter regulations on currency exchange in the parallel market and updating/reviewing laws on the procedures and limits for cash deposits and withdrawals at the local banks.
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