Emefiele and the Folly of Bundling Policies

On 26 October 2022, CBN announced new monetary policies, including redesigning the naira, reducing cash withdrawals, and promoting a cashless economy. According to the apex bank, these policies aimed to curb counterfeits, reduce insecurity, discourage cash hoarding, and promote price stability, financial inclusion, and a cashless economy. While their merits are debatable, their implementation plunged Africa’s biggest economy into an unpalatable state.

CBN provided a three month-window for the exchange of the redesigned N200, N500 and N1,000 currency notes. The move, CBN claimed, would reduce the amount of cash outside the banking system—about ₦2.73 trillion out of ₦3.23 trillion in circulation. While CBN claimed this was of grave concern, many argue that it is expected in a country where the informal sector accounts for 50 to 65 per cent of its Gross Domestic Product (GDP).

Nevertheless, CBN was confident in recalling the old notes and circulating the new ones. However, given the timeframe, many were sceptical of the apex bank’s ability to pull this off. As the deadline, 31 January, neared, Nigerians deposited their old currency notes while CBN carried out awareness campaigns to help rural residents adapt to the new naira notes. By the start of 2023, after the notes had been circulating for two months—albeit with extended edges and fading colours—ATMs still dispensed old notes. By the end of January 2023, it became apparent that there wasn’t enough cash to replace the demonetized old notes. A ten-day extension of the deadline by CBN did nothing to improve availability, as neither the old nor new notes were (and are still) available. The queues at ATMs were long and hopeless as the machines weren’t dispensing cash, and banking halls were full of angry customers demanding any available naira.

The apex bank’s conviction with this policy didn’t translate into its implementation. Nigerians experienced fights at ATMs, bought the naira at huge mark-ups, traders who sold perishable goods went home with their wares, and banks issued worn-out notes. These scenarios, typical in war zones and areas with continuous restiveness, became Nigeria’s reality when the policy was in place.

Nigerians questioned how the country arrived at this situation. None of the elements in these policies were new or unique to Nigeria. In the past, the country changed its currency, replaced denominations, restricted cash withdrawals, and promoted cashless alternatives. However, the difference was that things were done systematically and separately in the past. This time, CBN attempted to accomplish multiple objectives simultaneously–new currency notes, cash withdrawal limits, and a drive for a cashless economy. These three distinct challenges ought to be addressed separately.

Retrieving all affected denominations of the old notes–about ₦2.73 trillion, and distributing the newly redesigned notes within three months is a logistical challenge, especially in a cash-based economy. Changes in currency notes typically take years to implement fully in most countries, and challenges are still involved even after a long period. Take the case of India in 2016, where the government under Prime Minister Narendra Modi demonetized the 500 and 1,000 rupee notes. According to the Indian government, the goal was to crack down on tax evasion, corruption and illegal cash holdings, known as ‘black money’. What happened in India following this policy is akin to what happened in Nigeria. The BBC reported widespread frustration with the government, the establishment of barter systems and informal banks, and considerable hardship. The policy led to the closure of over 250,000 businesses, slowed growth in the real estate sector, and the loss of millions of jobs in the country.