Victor EzejaThe Naira redesign policy introduced by the Central Bank of Nigeria will have no impact in reducing inflation rate in Nigeria economic system, says Dr Muda Yusuf, founder of the Centre for the Promotion of Private Enterprise (CPPE).
Dr Yusuf, the immediate past Director General of the Lagos Chamber of Commerce and Industry (LCCI), said it has no basis in economic theory and empirical outcomes, countering the argument by the financial authorities as part of the benefits of the naira redesign policy.
The economic expert gave this indication while speaking at a Twitter space, titled, ‘CBN Deadline For Old Naira Notes – The Real Issues’ organised by Prime Business Africa on Monday, 30, January 2023.
Contrary to what was said earlier that redesigning the naira would help in bringing down inflation, by reducing the volume of cash transactions, Yusuf said it can’t because it has no impact on money supply.
He said that from a monetary point of view, inflation is driven by money supply.
According to the National Bureau of Statistics, the Nigerian inflation rate as of December 2022 was 21.34 per cent, a decrease from 21.47 per cent in the previous month.
He said the naira redesign will have a negative impact on the economy because of the way it is being handled by the financial authorities.
“Redesigning the naira has no impact on money supply because what you are supposed to do when you redesign the currency is to withdraw what is in the system and replace. But if you want to go a very crude way by impounding People’s currency in order to tackle inflation, that is most unacceptable. There is no strong correlation between the redesigning of the naira and bringing down inflation,” he stated.
He said the chaotic situation caused by the deadline and the scarcity of the new naira notes will have negative effects on agriculture and trade sectors of the economy that are currently, largely driven by cash.
He added that it will also have a knock-on effect on the manufacturing sector.
“It has caused a lot of issues in the market place. The sectors that are the most vulnerable in this cash swap thing and the scarcity of new notes are the distributive trade sector and agricultural sector. Distributive trade sector contributes about 14 per cent of our GDP; Agric is about 25 per cent of the GDP. These two sectors are driven largely by cash because they are mostly dominated by informal sector players. So, these sectors have been massively disrupted. It also has a knock-on effect even on the manufacturing because whatever you produce, you have to sell.
He said that with the scarcity, of the new notes come corruption and every other negative fall out, of the supply chain disruptions.
On the argument that there is too much cash in circulation, the CPPE CEO, said cash only constitutes 5 per cent of the money supply while 95 per cent is Within the banking system. He said 5 per cent is quite insignificant to warrant squeezing cash out of circulation.
He said most of the people suffering the cash squeeze are those in the lower echelon; (the low income people who mostly live in rural areas and make use of cash daily in all their transactions.
Yusuf said the 10 days extension of the deadline for phasing out the old notes offered by CBN is not enough. He called on the apex bank to extend it by a minimum of three months to enable Nigerians to have more access to the new months.
“Cash as a percentage of money supply in the economy today is just about 5 per cent. Monetary policy effectiveness is about money supply, it’s not about cash. The cash is about ₦2.6 trillion. Total money supply is about ₦52 trillion as at December 2022.”
He said that according to data, 95 per cent of the money is still within the banking system. “Not all money is cash, but cash is a part of money in the system. 95 per cent of money still within the banking system, so I don’t understand how they came up with the figure that 85 per cent of the currency is outside the banking system. Total currency as a percentage of total money supply is only 5 per cent.”
He said that cash is not meant to be constantly inside the banking system rather it should be outside in the hands of people who use it for daily transactions.
“The impression that is being given is that 85 per cent of money is outside the bank, that is not correct,” the economic expert stated.
On the issue of hoarding which the CBN cited as part of the reasons for redesigning the currency notes, Yusuf said the fault is from the commercial banks that selectively distribute new banknotes.
He said this can explain why one would go to a bank and can’t find new months but at weekend parties and other social events people hawk, exchange them and spray on celebrants.
He said all the arguments being posed to justify the naira Reissue does not suffice for all the hardships that the citizens are currently subjected to.
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
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