Following the Supreme Court ruling that temporarily stopped the Central Bank of Nigeria (CBN) from proceeding with the implementation of its February 10 deadline for the submission of old notes at the various banks in the country, immediate past president of the Lagos Chambers of Commerce and Industry (LCCI) and current Director of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, speaks with IMOLEAYO OYEDEYI on the CBN cash swap and monetary policy controversy among other sundry economic issues.
What is your thought on the deadline set by the CBN for the old and new currency swap and the general monetary policy?
I am concerned that the failure to extend the deadline for the currency swap could put the N100 trillion component of the national GDP at risk. Two critical sectors are particularly vulnerable – trade and commerce; and agriculture. The crippling of business transactions at the distributive trade end amid the currency swap crisis would not only undermine the trade and agricultural sectors but would also have a knock-on effect on the manufacturing value chain and the services sectors. This is because whatever is produced has to be sold. The trading end of the chain has been greatly disrupted by this currency swap crisis.
The trade sector contributes about 14 per cent of GDP valued at an estimated N35 trillion; the agricultural sector contributes 25 per cent valued at an estimated N62 trillion. Most of the activities in these sectors are either in the rural areas or in the informal sector of the economy. These are the sectors that have been driving the resilience of the Nigerian economy amid numerous domestic and global headwinds. Any policy measure that would negatively disrupt these sectors should be avoided.
For an economy that is tottering on the brink, the capacity to absorb shocks and disruptions is severely constrained. With 133 million Nigerians in poverty, inflicting additional hardship on the citizens would be unfair, insensitive and inconsiderate. The reality is that presently in many parts of the country, more than half of the currency in the hands of citizens are still old notes. And it is on record that the banks were still giving out old notes even a few days to the CBN deadline. The citizens should not be made to pay for the incompetence, inefficiency and ineptitude of state institutions.
Given the size of the Nigerian economy, our large population of over 200 million people, the dominance of the rural economy, the huge informal sector, the literacy level, and the over 30 million Nigerians that are unbanked, a minimum of six months window ought to have been given for the currency swap exercise.
But there have been insinuations in some parts of the country that the monetary policy of the CBN has somehow been beneficiary by reducing the country’s surging inflation. What is your take on it?
No, it has nothing to do with that. In fact, it has no effect on inflation. This is because they only redesigned the currency. What that implies is that you take out N100million old notes out of the economy and release N100million new notes into the economy. So with that, nothing changed?
But there were claims that the amount the CBN is taking out of the economy is more than the amount it is releasing back to the economy…
That is also very wrong. This is because you cannot take people’s cash and sit on it. That is not the way monetary policies are run. The whole essence of a bank and banking system is that when you deposit your money, you should be able to take it back anytime you need it. So the CBN has no right to take anybody’s money and lock it up in the bank, because it wants to fight inflation. That is what is creating all these crises now. It is not done like that anywhere in the world. Depositors’ funds are to be released to them as and when they need it, unless we have a major crisis. The only thing the CBN normally does to check inflation is to use monetary policy instruments. I’m sure you have heard of what is called Cash Reserve Ratio (CRR). The CBN manipulated it to reduce liquidity. You may have also heard of Monetary Policy Rates (MPR). And sometimes ago, there was also what we call a special deposit. The CBN has also sold treasury bills. All is just to reduce liquidity. But you don’t take people’s hard-earned money and sit on it, because there is no law that gives them such powers.
But there are some claims that the monetary policy of the CBN was done to stop politicians from having money to buy votes during the upcoming election…
That is not monetary policy. That is a different matter entirely. Whether it will now work or not is a different thing. And whether such an act is a function of the CBN is another different thing. And whether you can make millions of people suffer, because you want to block some politicians from buying votes is also a different thing. All these things are debatable. But sadly, you can see the way people are suffering. Some people cannot even feed themselves, because they have money in the bank, but cannot withdraw it. And those selling small things don’t have anyone to buy these petty goods, because the consumers don’t have the cash to buy. And these kinds of businesses are not the ones you can be doing with bank transfers.
Recently, I spoke to a bread seller. She was expressing her pain to me that virtually all her bread has remained unsold, because people were coming to her to pay N200, N300 through bank transfer, which she refused, because at the point of withdrawal, POS operators would charge her exorbitant amount, which would exceed the entire profit she want to make on the bread. Isn’t that disastrous? So, if the government wants to fight vote-buying, they should devise other means to do that. They should not block everybody, because they want to fight vote-buying. Imagine, some people have deposited N500,000; some have deposited N1million and some have even deposited more than that. And this is the money that these people are using to do business every day. But because you want to block vote-buying, you now asked these people to come and take N20,000 weekly. Where is that done?
If you want to do that, there is an intelligence you can use. We can have the financial intelligence unit that will be monitoring those withdrawing money at the various banks. And when they see anyone coming to the bank to withdraw or deposit like N10million, they can query such a person. But look at how innocent Nigerians are suffering, because the bank has collected the money they feed with and refused to give it back to them in new currencies. Can you say the CBN’s move is logical? It is just like saying you have a community of over one million people and a few terrorists are in the community. Will you go and bomb the entire community, because there are one or two terrorists in the village? You have to think of the collateral damage. So, you use intelligence on how to zero in on the terrorists. You don’t go and start bombing the community, because there are terrorists there. It is the same logic. If people will use cash to buy votes, find a way to tackle those people instead of blocking everybody, the innocent masses.
So, is it that the policy is ill-timed or completely out of place?
You don’t do a policy like that. If you are looking for criminals who are using our currencies, use intelligence to locate them. And if you want to do cash swap, do it gradually, such that as people are bringing the old notes with them, they will be collecting the new notes at the same time in the bank. That is how it is done all over the world. For instance, if you bring N500,000 old notes to the bank, you should be giving new notes of the same amount at the bank, except if you don’t want to take all at that time. But in this case, one will take about N1million old notes to the bank and instead of giving the person new notes of the same amount, the bank will ask him to go and start queuing at the ATM for N20,000 every week. Is that fair? Isn’t it callous?
But considering the fact that some politicians have stocked the old naira in their homes, isn’t the monetary policy beneficiary in this regard?
Well, my take is the security agencies should have used more intelligence in handling this issue. The government doesn’t have to punish innocent Nigerians. If they say a person has kept billions at home, won’t he or she bring them out or even take them to the bank in view of the naira redesigning? But the government asked the poor masses to take their old notes to the bank. But instead of getting the new ones, they got nothing. The bank said people should resort to online banking, but most of the bank Apps too have broken down. Worst of all, there is no money in most of the ATMs around, all of which have combined to heap huge misery and pains on Nigerians. And that’s why they are angry and embarking on violent protests everywhere. The fact is it is their money and no bank has the right to withhold it for any reason. If there are no new notes, give them the old notes.
But the CBN has continued to say that it has released the new notes to the banks and that it is the banks that are withholding them…
See, the CBN is just looking for scapegoats. I know people are engaging in deals, after all, they have arrested some bank officials. But the truth is the CBN hasn’t been considerate in the release of the new notes. The apex bank said it has collected about 2.7trillion cash from the masses. How much has it released back to the people? About N500billion. What of the rest? When would they give it back to the people? Don’t forget that it is the commoners that use cash mostly. The market women, petty traders, hawkers, motorists, okada riders, artisans and all are those that use cash the most. And that’s why they have been the worst hit by the CBN policy. The question now is: are they the politicians that want to use old notes to buy votes?
So are you saying that the government should have used the security operatives in taming vote-buying instead of the monetary policy?
The government should have used intelligence, instead of a policy that will inflict pain on the generality of the people. That is my point. Everything just shows that the current administration doesn’t understand economics.
So what is the solution…
The solution is what the Supreme Court has done. So, I welcome the restraining order on the timeline for the currency swap. I believe extending the deadline would restore normalcy to economic activities especially in the distributive trade sector, the informal sector and rural economy. It would also douse current social tension and the risk of social unrest in the country.
The small businesses and the ordinary citizens were the biggest victims of the unspeakable disruption and hardship inflicted by the impractical deadline given by the CBN on cash swap. They are the biggest users of cash.
My position is that given the huge population of over 200million, the large informal sector which accounts for over 40% of the GDP, the large rural economy and the over 30 million unbanked Nigerians, the CBN cash swap model and timeline was greatly flawed. It is inappropriate to arbitrarily cut down on currency in circulation without due regard to data, empirical studies and global best practices.
The fact is the N2.6 trillion currency in circulation is not too much for the Nigerian economy with a GDP of about N250 trillion. Any attempt to arbitrarily cut it will create a crisis. It is unacceptable that citizens are denied access to their cash deposited for purposes of cash swap. It could undermine the confidence of the citizens in the banking system and pose a major risk to the financial inclusion objective of the CBN. Onboarding citizens onto the cashless platform should not be decreed or forced on them. It should be voluntary and incentive driven.
Meanwhile, in compliance with the Supreme Court order, I urge the CBN to immediately allow the old and new currency notes to co-circulate until such a time when the old notes are gradually and completely withdrawn. This is global best practice. This should happen within a space of three to six months.
Meanwhile, all the cash that has been mopped up should be released to their owners, unless there are reasons to suspect such lodgings and this should be escalated to the anti-graft agencies. Citizens that have lodged their cash for purposes of the cash swap should be allowed unfettered access to their money.
