Kingsley Moghalu, a former Deputy Governor of the Central Bank of Nigeria (CBN), explained on Friday why he supports the bank’s recent decision to redesign naira notes.
Mr Moghalu stated in a series of tweets that the CBN is attempting to gain control of the economy’s money supply.
While the move may not stop inflation, he sees it as a “necessary step.”
“I fully support the Central Bank’s redesign of the Naira,” he said. “If 80% of bank notes in circulation are outside the banks, that’s troubling. The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender to get new ones or else it becomes illegal tender after January 31 2023.
“This is also a way to withdraw currency from circulation, an unorthodox way of tightening the money supply since the country is battling high inflation.
“The flip side is that people who are holding huge amounts of cash outside the banking system for nefarious reasons will go the parallel forex market to buy hard currency, putting further downward pressure on the value of the Naira as too much Naira will be chasing too few dollars.
“I doubt it will solve inflation because there also are other major reasons for inflation such as the forex crisis, which this new move could exacerbate, as well the impact of the security crisis on food price inflation.
“But overall it is a necessary step.
“I just think the time window for its implementation is rather short. This will put a lot of operational pressure on commercial banks and the financial system in general. A 90 day window would have been better, but one can understand the need to avoid interfering with the elections.”
I was not consulted about naira’s redesign – Zainab
Zainab Ahmed, Minister of Finance, said on Friday that the Central Bank of Nigeria did not consult her ministry before deciding to redesign naira notes by December.
She made the revelation during the Ministry of Finance, Budget, and National Planning’s budget debate in Abuja.
Even though one of the reasons for the decision is to manage inflation, the Minister stated that consequences are unavoidable.
“We were not consulted,” she said. “It was an announcement that we heard. Part of the reasons that was advocated is that it is one of the ways to mop up the liquidity to manage inflation.
“But there are also consequences – we are looking at what the consequences will be. There will be some benefits but there will be some challenges.
“And I don’t know whether the monetary authorities have actually looked very closely at what the consequences and how they will mitigate it.”
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