Naira swap: The Federal Government insists on February 10 and asks the Supreme Court to dismiss the states’ suit.

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Uncertainties surrounding the Central Bank of Nigeria’s (CBN) naira redesign policy were exacerbated yesterday when the Supreme Court overruled an earlier injunction granted by a high court in the Federal Capital Territory (FCT) preventing the Federal Government and the CBN from undermining the ongoing currency swap deadline of February 10.

While the Supreme Court ruling appeared to have alleviated the polity’s anxiety over cash scarcity, the Federal Government last night asked the Court to dismiss a suit challenging the CBN’s February 10 deadline to end the legal tender status of the old naira notes of N200, N500, and N1,000.

It argued that the Supreme Court lacked jurisdiction to hear the suit, which was filed by three northern states controlled by the ruling All Progressives Congress: Kaduna, Kogi, and Zamfara (APC).

CBN Policy

The respondent maintained that the case is not about a disagreement between the federal and state governments, but rather about CBN policy. It argued that the suit should have been filed in the Federal High Court rather than the Supreme Court, and that it should have been heard there first.

As the representative of the Federal Government, the Attorney-General of the Federation (AGF) and Minister of Justice, Abubakar Malami (SAN), sued as the sole defendant, filed his opposition to the suit as a preliminary objection against it at the Supreme Court on Wednesday night.

In their application to challenge the naira redesign policy, the three state governments asked for an order preventing the CBN from discontinuing the use of the old notes on February 10. They cited the hardships caused by the scarcity of new notes for many Nigerians.

After hearing from the applicants’ lawyers yesterday, a seven-member court panel led by John Okoro issued an interim injunction halting the CBN’s plan to phase out the old banknotes as planned. The main case was then adjourned until February 15 by the court.

President Muhammmadu Buhari Met with CBN Governor Godwin Emefiele

President Muhammmadu Buhari then met with CBN Governor Godwin Emefiele and AGF Malami at the Presidential Villa in Abuja. Apart from the AGF asking the Supreme Court to dismiss the governors’ suit, the outcome of the meeting was unknown as of press time.

This comes as the International Monetary Fund (IMF) yesterday called for an extension of the February 10 cash swap deadline. The IMF, in a statement issued on behalf of its Resident Representative to Nigeria, Ari Aisen, by Office Manager for Resident Representation for Nigeria, Laraba Bonnet, in Abuja, based its appeal on the hardships that Nigerians were experiencing.

“In light of the hardships caused by disruptions to trade and payments due to a shortage of new bank notes available to the public, and despite measures introduced by the CBN to mitigate the challenges in the banknote swap process,” it said.

Involvement of IMF

The IMF is the first international financial institution to publicly advocate for an extension of the deadline for depositing old Naira notes.
Governor el-Rufai has urged Nigerians to continue using the redesigned notes’ old denominations. El-Rufai stated that Nigerians should disregard the CBN directives because APC presidential candidate Asiwaju Bola Tinubu, if elected on February 25, would reverse the decision.

“Continue running your businesses and daily activities with whatever notes (old or new) you have,” the governor said in Kaduna. Don’t rush into taking old naira notes to the bank and wasting time in unnecessary queues.

If Tinubu is elected president, we will give people more time to get rid of the old naira notes.”

However, as safety concerns dominate management decisions, more commercial banks have closed their doors to customers, halting cash operations.
According to the findings, most bank executives have been strongly advised to avoid putting their employees’ lives in danger until “reasonable assurance of safety” is provided.

The security concerns and sheer volume of the currency removed from circulation may have negated any benefit from yesterday’s Supreme Court interim injunction preventing the CBN from enforcing the deadline for phasing out the old naira notes, which was set for tomorrow.

Collection of the Old Naira Notes

Last week, CBN Governor Emefiele stated in Lagos that N2.1 trillion naira had been collected since the start of the exercise. In addition to the N500 billion naira said to be in the banking system, the apex bank could have warehoused over N2.6 trillion naira from the N3.23 trillion in circulation as of last year, reducing the total value of the volume of old naira banknotes in the economy to around N400 billion naira.

The number of new notes in circulation is currently unknown. During an appearance before the House of Representatives, Aisha Ahmad, Deputy Governor of the Bank (Financial System Stability), stated that 500 million naira new banknotes had been ordered without specifying how the various bills make up the figure.

Though the CBN previously stated that it would not mass produce the higher denominations (N500 and N1000), which it stated should not be used for transactions.

However, this may not accurately reflect the depth of cash scarcity that Nigerians are currently experiencing. With so much speculation about bank hoarding and slow circulation, it’s difficult to know how much money has been released into the economy. The CBN has also not provided an update on current production status, such as whether any new notes have been printed since the deputy testified before parliament.

Despite the Supreme Court’s order, The Guardian has learned that cash shortages may persist for some time. Cash points, whose operations have been limited in the last week, have been completely shut down as insecurity has compounded the problems.

For example, in Lagos, most automated teller machines (ATMs) have been disabled, forcing more people to use point of sale (PoS) terminals, the majority of whom have run out of cash.

Effect of the Bank Closure

With bank sources completely closed, PoS operators (dubbed the “new parallel market” by some) have turned to fuel stations and informal traders, where they buy cash at a premium.

Already, research indicates that only a small percentage of banknotes distributed through ATMs and over-the-counter (OTC) transactions are released into the economy. Much of it is being hoarded by individual customers who are unsure when they will receive it or if the crisis will be resolved anytime soon.

At a recent press conference in Lagos, Emefiele stated that panic behavior is a major impediment to the flow of currency, urging Nigerians to have faith in the regulator and commercial banks’ ability to meet their cash needs.

Unfortunately, the situation worsened less than a week after Emefiele’s assurance. Profiteering by bankers has increased, while currency traders’ fees have skyrocketed. Individuals in Lagos were charged as much as N3,000 for a N10,000 withdrawal yesterday. An operator attributed the increase to rising illiquidity.

According to The Guardian, the majority of bank branches have not received cash supplies from their head offices this week, so cash operations have been suspended because deposits are non-existent.

The Bank Directors Association of Nigeria (BDAN) said yesterday that it is on top of the situation and is working with all stakeholders to restore sanity.

“We are in constant communication with all the Banks and are assured that they are all doing whatever is within their control to normalise this difficult situation,” the association said in a statement signed by Chairman Mustafa Chike-Obi. We implore the banking public to remain calm, and assure them that BDAN is taking all reasonable steps to influence the structure and mechanisms that will free up bottlenecks and open channels that will speed up the resolution of the crisis.”

The body, comprising all boards of directors of banks, sympathises with Nigerians, assuring that it “is making it a top priority to ensure that this hardship is not only addressed but eliminated”.

The Guardian reported yesterday that bank boards of directors were taking the necessary steps and seeking the understanding of all relevant stakeholders in order to restore sanity to the industry.

Effects of the Lack of Old Notes

The lack of old notes may have also suggested that Nigerians would have to wait for the CBN to print more naira notes and circulate what was left in the vaults before returning to normalcy. It should be noted that much of the cash holdings were returned to banks prior to the extension, which ran from January 31 to February 10, 2023.

However, experts have urged the central bank to expedite the recirculation of the withdrawn funds. Dr. Tope Fasua, a former presidential candidate and economist, believes that returning the old notes is the best option because putting undue pressure on Nigerian Security Printing and Minting PLC could be costly to the country.

“In light of the suffering of the masses, I don’t think there’s any point in rushing through the exercise,” Fasua said. The mopped-up cash can still be returned to the system. Some of the funds must have been transferred to CBN branches throughout the country.”

Also speaking, Godwin Owoh, a professor of applied economics, urged the apex bank to release the old naira notes alongside the new ones as soon as possible to bridge the gap. He observed that further delay could cause scares in the banking system that could take years to heal.

“It depends on how the CBN reacts to the judicial pronouncement. “If it releases enough cash and customers are confident that they will be able to get cash whenever they need it, the panic will dissipate in a matter of days,” Owoh predicted.

Director-General of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said “all the cash that have been mopped up should be released to their owners unless there are reasons to suspect such lodgments”.

“Citizens who have lodged cash for the purposes of the cash swap should have unrestricted access to their money,” he added. He claimed that suspending deadline enforcement would relieve tensions, particularly in the distributive trade, informal sector, and rural economy. He also predicted that the growing social tensions in the country would dissipate in the coming days.

“The CPPE reiterates its position that given the huge population of over 200 million, the large informal sector which accounts for over 40 per cent of the gross domestic product (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 reduce the amount of currency in circulation arbitrarily without taking into account data, empirical studies, and global best practices.

“We affirm our position that N2.6 trillion naira currency in circulation is not too much for the Nigerian economy with a GDP of about N250 trillion naira. Any attempt to cut it arbitrarily will result in a crisis. It is unacceptable that citizens are denied access to cash deposited for cash swap purposes. “This could undermine citizens’ trust in the banking system and pose a significant risk to the CBN’s financial inclusion objective,” Yusuf said in a prepared response.

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