Currency swap: How not to run a country By The Nigerian Guardian Editorial Board

CBN governor Godwin Emefiele and Nigeria President Muhammadu Buhari… PHOTO: Twitter/NigeriaGOV

President Muhammadu Buhari-led administration has a duty to apologise to Nigerians for the failure in implementing the redesign policy of the naira and swapping old currencies with the new N200, N500 and N1000 notes. The government has an even more sacred duty to apologise for the unprecedented, horrendous hardship it has needlessly brought on the citizenry. And the government must accept full blame for standing governance on its head and spearheading deep conflict within the federation, as manifested in the dissonance in the president’s directive to Nigerians to spend only the new notes (notwithstanding their unavailability) except the old N200; vis-à-vis the directives of many state governors asking their citizens to spend and accept both old and new notes, in accordance with the order of the Supreme Court delivered on February 8 and reiterated on February 15, 2023. The ensuing confusion has left no citizen in any doubt of President Buhari’s lack of grip on effective governance. In the tardiness of his government, even the simplest of policies tend to turn sour and distasteful because of horrendous execution. The current monetary policy failure is the latest indication of Buhari’s refusal to learn from past errors. While currency redesigning may be well-intentioned, especially against vote-buying ahead of the general elections, handlers miscalculated the overarching effect on the masses and ran afoul of the common good of the country. Across the board, Nigerians are in dire straits. But with restiveness mounting in cities and governors’ daggers drawn with the presidency to cook up a constitutional crisis just days to presidential elections, there is a growing apprehension that the avoidable crisis might be tailored at disrupting a seamless transition in May – beginning with the general election. And this is why all well-meaning Nigerians should be wary of the confusion and refrain from giving in to the devious plot. As far as this episode has shown, the general public can see through the veil that neither the president, nor the governors, lawmakers, politicians, nor even the Central Bank’s leadership has the peoples’ best interest at heart. Thus, amid biting socio-economic realities, the general public should stay focused on having credible elections.

Ab initio, the currency swap policy just weeks to general elections is wrongheaded. When the Central Bank of Nigeria (CBN), led by Godwin Emefiele, rolled out the currency swap plan for N1000, N500 and N200 currencies, this newspaper had warned early November that the programme was too hasty, ill-advised and designed to boomerang. It will be recalled that the CBN had deployed the unease with substantial currency holdings outside of the banking sector and the purportedly detrimental effect on the effectiveness of monetary policy to support that decision. Additional justifications included a desire to strengthen its cashless policy and a determination to use more recent developments in currency production to reduce instances of currency fraud. The CBN added that while it was customary for central banks to redesign and issue new currency notes every five to eight years, the Naira had not undergone such a change in the preceding 20 years.

But as Nigerians had suspected and later confirmed by Buhari, the banknotes’ charade was also politically-motivated to deter moneybag politicians believed to have starched away enough cash to buy victory at the poll. In his national address to the nation and in reference to the February 25 elections, Buhari said: “I am aware that this new monetary policy has also contributed immensely to the minimisation of the influence of money in politics. This is a positive departure from the past and represents a bold legacy step by this administration, towards laying a strong foundation for free and fair elections.”

As Buhari said and granted that the huge volume of banknotes outside the banking system was hurting the economy, coupled with the imperative of checking inflation, banditry, ransom-taking and the political class (to justify immediate mop up of N2.1 trillion, being 80 per cent of funds outside the banks), at what cost are all these to the average Nigerians who are heavily dependent on cash-transactions daily? Contrary to the claims by Buhari and Emefiele’s CBN, there is sufficient evidence to support the primacy of cash transactions to the Nigerian economy. The informal sector accounts for more than 84 per cent of employment and close to a third of domestic output. Without cash, the economy is grounded and typical of the hell average Nigerians have witnessed in the last couple of weeks.

Right in the middle of the lingering fuel crisis that has refused to thaw for three months, Nigerians were shell-shocked to find cash gone scarce. Cashless and electronic banking had never been perfect; they literally went berserk with all manner of malfunctioning and conflicts between buyers and sellers in major cities. Contrary to Emefiele’s assurance on sufficient supply of the new notes, most banks have little or nothing to give its customers. Nigerians could sense something sinister in the entire arrangement. Here is a vicious system that has mopped up the old currencies, but failed to give new ones in return. The relationship between banking institutions and customers is a contractual agreement. How tenable is the scenario that monies freely deposited in banks have become inaccessible at banks, but now offered at exorbitant black market rate through the Point of Sale (PoS) merchants? People in the cities can tell how hellish the system has turned in the last couple of weeks, not forgetting that the majority of Nigerians live in the interior, without online or onsite banking, and in quandary. How insensitive and wicked can a government get?

The unnecessary anguish, compounded misery, frustration, protests, arsons, and general instigation of anarchy should have been avoided where both the presidency and the Central Bank are more discretional. Based on economic data, this newspaper had warned that the end-goal of currency swap defiled good logic. Indeed, there should have been no worry about the amount of money outside the banking system being at 85 per cent when the ratio of money outside the banking system to money in circulation has been consistent at over 80–90 per cent during the last 20 years.

Additionally, the proportion of currency held outside of the banking system to broad money (referred to as M3 in Nigeria) has been dropping from as high as 20–30 per cent in the early 2000s through the decade and finally to 6.5 per cent by the end of September 2022. This downward pattern is mostly a result of more people using electronic banking and other segments of the banking system. In fact, there was N18.7 trillion in total demand deposits in the banking industry. The CBN’s concern that the NGN2.73 trillion outside the banking system was somehow harming monetary policy more than the N18.7 trillion in demand deposits would therefore seem perplexing notwithstanding these developments.

As it is, cash in circulation does not necessarily fuel inflation, which the Central Bank under Emefiele has consistently mismanaged. One of the most effective tools to tackle inflation is the benchmark rate. Through his arbitrary debiting of banks to meet his equally arbitrary sense of banks’ cash reserve ratios, Emefiele has severed the transmission lines that connect the Central Bank’s monetary policy rate (MPR) to retail rates in the financial services sector. By tackling inflation through the backdoor channel of currency mop up, CBN has negatively slowed inflation because the people have no money to spend even on basic needs. But that is a pyrrhic victory that is simultaneously chewing up the economy with Micro, Small and Medium Enterprises (MSMEs) worst hit.

Overall, Emefiele has proven more of an awful manager of the monetary policy and the entire affairs of the apex bank. By default, his judgment is suspect and in saner climes, he would have been relieved of that critical office for the good of all. First, he is partisan and a bizarre interested party in the political climate. He not only featured as a party-member, he stuck out his neck for office of the presidency under the ruling All Progressives Congress (APC). Under his watch, the CBN’s right to autonomy has become more questionable, both by his meddling in politics and president in turn meandering with the monetary system. Emefiele has very little left in self-defence against politicians pointing accusing fingers at his role in the dirty political game.

Similarly, how come Emefiele planned and executed such a national fiasco without knowledge of the Minister of Budget and National Planning – an official that is critical to the success or failure of the administration? After mouthing empty assurances that there were sufficient new notes to go round, why did he turn around to blame banks for hoarding unavailable notes (when the same should have been anticipated and control measures deployed), and indirectly inciting violence against banks? The same Emefiele has disparaged the ruling of the Supreme Court, apparently forgetting that the interpretation of the CBN Act is dependent on the same court. Emefiele has blamed everybody else but himself for the rather obnoxious approach that routinely fails globally.

Most culpable in the entire absurdity is Emefiele’s employer, President Muhammadu Buhari, who was actually elected by Nigerians to do a better job. On one hand, there is a sense in his rejig of strategy to ambush moneybags. By the way, the political class has truly been wayward. It began with what they called stomach-infrastructure, a codename for corruption and daylight malfeasance in the electoral process. The Nigerian money-denominated electoral process is one of the most expensive in the world. It has criminally been designed for only the moneybags, who must also avoid defeat to escape bankruptcy. They, therefore, deprive the public of basic amenities just to amass so much resource for dole outs in exchange for votes on election day. So, most politicians and aspirants are guilty of the crime and their dramatic reactions to set aside the currency swap policy speak volume.

The APC, led by the President, is not any better and it is most ludicrous that it took almost eight years for Buhari to react to the institutionalised money politics. Ipso facto, Buhari is not a new broom in the politics of big spenders. He knows its role in his emergence as the APC’s flag-bearer in 2015 and in winning the presidential elections twice. He was in the know when his party in 2022 mandated presidential aspirants to pay N100 million non-refundable fee as expression of interest in the presidential race. That is a job that cumulatively earns only N56 million salary in four years! He knows how much in foreign currency was sunk into the party primaries that eventually produced candidates of the two leading political parties. After that were the Ekiti and Osun elections where monies exchanged hands, and the law enforcement agencies looked the other way. No one was sanctioned. No investigation was carried out and there is no penalty for complicity! Mr. Buhari saw through them all and only yawned.

So, why now the urgency in banknotes swap just days to general elections? To cook up a storm of chaos and confusion that will make a general election impossible? His party flag-bearer, governors and others have accused him of anti-party activities that stifle both petrol and naira supplies to the public just to well up anti-APC sentiments and scuttle chances of its candidates at the polls. Some of his loyalists, including Governor El-Rufai of Kaduna State, ran to the Supreme Court for mediation, citing the presidential circle as incompetent and saboteurs. Characteristically, Buhari has refused to obey the judiciary ordering that the old notes should continue to be a legal tender pending the hearing of the suit that will come up in just a couple of days to the presidential elections.

Clearly, Buhari has proven his mettle in how not to run a government or learn from history. The country was at the same crossroad in 1984 when Buhari was the Head State and introduced the same poorly thought-out monetary policy that plunged the entire country into hardship and eventually plotted his ouster. On his second-coming, he should have learnt that it takes a higher mind, than of those that create it, to effectively solve a problem. Ideally, a genuine war against corruption and efficient law enforcement agencies should have worked out the solution to vote buying; not draconian mop up of available currencies and running the entire economy aground.

If Buhari’s intent in 2023 Nigeria is to fight money politics with Naira redesigning, he has been beaten at his own game by the same politicians the policy targeted. What is left is for Buhari to pull back from its attendant socio-economic tipping point and save the country from implosion. Lest he forgets, Section 12 (2) (b) of the 1999 Constitution, as amended, mandates that government’s policies and programmes must be tailored toward provision of “security and welfare of the people” being the common good of all. Hence, once programmes and policies of any administration orchestrates hardship, suffering, sorrows, calamity and general disenchantment, then that administration has strayed from the path of common good. The banknotes debacle is a reflection of a government gone astray. The saving grace for the Buhari-led disaster should have been a full compliance with the position of the Supreme Court to keep both new and old currencies in use, for which the Attorney General should have educated the President accordingly

The United Kingdom has similar currency swap policy, but theirs conforms to the rule of commonsense that both old and new banknotes should coexist side by side as legal tender till the old currencies gradually retire out of circulation. In Nigeria, there is no guarantee of the new notes and there is no point compounding the misery of beleaguered general public. The Democrat in Mr. Buhari should lead by example in obedience to the February 8 ruling of the Supreme Court, the rule of law generally and not only when it is convenient.

We sympathise with Nigerians for the avoidable pains of the last couple of weeks. However, staging riots, setting banks on fire, killings and causing further breakdown of law and order in protest of systemic failure and horrendous leadership is not the solution. Most of the political elite, including members of the National Assembly, have shown that they have nothing to offer the masses. The currency conflict of interest is solely in their selfish interest – to win at the poll. Yet, the general elections avail the best opportunity in a democracy, for the masses to pay the politicians in bad coins and force a lasting change that Nigeria deserves. Such requires an atmosphere of peace, law, order and sacrifice of all to bear with the current pains and turn the corner of this venal leadership.

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