Moghalu: Naira redesign is a necessary step — but may not solve inflation

Kingsley Moghalu, former deputy governor, Central Bank of Nigeria (CBN), says the move to redesign naira notes may not solve inflation.

Moghalu disclosed this in a tweet on Saturday.

The CBN announced that it redesigned some new naira notes.

The apex bank said the new notes include N200, N500 and N1000, adding that the new design and issues will be effective from mid-December 2022.

Speaking on the development, Moghalu said he supports the decision of the bank, adding that those with old ones must take them to the bank before it becomes “illegal tender”.

“I fully support the CBN redesign of the Naira. If 80 percent of banknotes in circulation are outside the banks, that’s troubling,” he said.

“The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender to get new ones or else it becomes illegal tender after January 31 2023.

“This is also a way to withdraw currency from circulation, an unorthodox way of tightening the money supply since the country is battling high inflation.

“The flip side is that people who are holding huge amounts of cash outside the banking system for nefarious reasons will go to the parallel forex market to buy hard currency, putting further downward pressure on the value of the naira as too much naira will be chasing too few dollars.”

Moghalu further said the redesigning of notes may not solve inflation.

He also expressed worry about the short time frame given to commercial banks to receive deposits of old naira notes across the country.

“I doubt it will solve inflation because there also are other major reasons for inflation such as the forex crisis, which this new move could exacerbate, as well the impact of the security crisis on food price inflation,” he added.

“But overall it is a necessary step. I just think the time window for its implementation is rather short. This will put a lot of operational pressure on commercial banks and the financial system in general.

“A 90-day window would have been better, but one can understand the need to avoid interfering with the elections.”

NO NEED TO CONSULT THE MINISTRY OF FINANCE

The news of the naira notes redesign had elicited public debates, with the majority of views suggesting that it would cause more harm to the economy.

On Friday, Zainab Ahmed, minister of finance, budget and national planning, said the ministry was not consulted before the CBN decided to redesign the naira notes.

But Moghalu was of a different view, arguing that the minister of finance does not need to be consulted on such matters.

“Finance minister, Zainab Ahmed’s comment to Nigerian national assembly that she was not aware of the naira redesign by [the] Central Bank of Nigeria should not mislead anyone into thinking the CBN owes her that kind of information. The bank only needs the approval of President Muhammadu Buhari for this particular exercise,” he explained.

“It received that approval. There are only three issues on which, in the CBN act of 2007, the bank should obtain external authorisation, and only from the president of Nigeria, for its operations: 1. any alterations to the legal tender (the naira); 2. any investment of the bank’s funds outside Nigeria; [and] 3. the bank’s annual report.

“Outside of these, the only approving authorities for CBN operations are its committee of governors (note the ‘s’) consisting of the governor and the four deputy governors, and the board of directors of the CBN, which includes the governor, the four deputy governors, and seven external members which include the permanent secretary of the federal ministry of finance, and the accountant-general of the federation.”

Mogahlu, however, said the CBN should now focus hard on the implementation of the policy.