CHAPTER ONE/INTRODUCTION
Monetary policy is governed by the CBN. It is the classic example of a regulatory body. The standard for making regulatory determinations, such as the one it is putting out regarding the redesign of the currency, is that the regulator may only take action if the advantages of the suggested course of action outweigh the disadvantages. In addition to financial and commercial costs and advantages, a thorough cost-benefit analysis would also include social and political costs and benefits.
We should be aware that money is very important to a nation’s economy. It decides factors like general price levels, total national revenue, output and productivity, levels of employment for labor and capital, and exchange rates. and the payment balance.
It is generally recognized that redesigning money might reduce counterfeiting, particularly in cases where the security of the current design can be readily gotten through. The development and production of new currency would need billions of Naira in public monies, which is another truth. To support this design and printing of the new Naira, CBN should provide reliable figures demonstrating the proportion of counterfeit Nairas in circulation. According to the CBN’s most recent report, the 2020 Currency Report, 67,265 counterfeit notes totaling N56.83 million in nominal value were seized in 2020, representing a 20.80% decline in volume and 12.18% fall in value compared to 84,934 pieces valued at N64.71 million in 2019. 100 is the global average for counterfeits per million. In 2020, there were 13 pieces of counterfeit currency for every million banknotes in circulation, down from 20 pieces per million in 2019. This demonstrates that the problem of counterfeit money is not as pervasive as would need a modification of the currency.
The CBN asserts that hoarding is the reason it is also revamping the Naira. Given that the Naira-Dollar depreciation is now so high, CBN must utilize fake value, this allegation should be thoroughly investigated. At least three devaluations of the naira occurred between 2021 and 2022, and it seems that there will be at least one more. This devaluation, together with rising inflation, will decrease the naira’s buying power. The CBN’s assertion that a currency whose value is sharply declining is being hoarded in large quantities defies economic sense. The political elite has the ability to accumulate such vast sums and would have had the ability to convert it to dollars. The CBN Governor’s contention that a redesign of the currency would hinder ransom payment is further undermined by the conversion argument. Naira redesign alone won’t stop the rise of inflation in this nation, particularly when this approach doesn’t recognize the true worth of the Naira. In fact, it may lead to more inflation since those who had large sums of illegally obtained Naira might use them to buy expensive goods or engage in currency exchanges that would boost the economy’s growth.
The CBN could perhaps carefully examine the numerous disastrous policies that caused this inflation, including its increased propensity to print money for the Federal Government, its direct financing of Nigeria’s budget, and its violations of the CBN Act by going over the 5% threshold of the Ways and Means Law and printing money for State allocations. The activity of redesigning the currency is neither free nor inexpensive. Many trillions of dollars will be spent by taxpayers. The cost of the redesign, logistics, and printing will be high. The money needed to pay for this is not inexpensive in these times of declining tax revenues, a large budget deficit, and a high rate of debt. According to a CBN study, producing banknotes cost a total of N58,618.50 million in 2020. This sum represents the cost of printing banknotes with the current design. Now, consider the logistics and cost of manufacturing banknotes with a redesign. Thus, we need a prudence and relevance test to demonstrate that this is an efficient and successful policy using defensible and verifiable measures.
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