Nigerian Central Bank makes a mess with new currency notes

The redesign of the Nigerian currency by the Central Bank of Nigeria is raising fundamental questions on the domain and objectives of monetary policy. This is coming against the background of the difficulties and challenges which ordinary Nigerians have experienced while cooperating with the bank. This discourse reviews the implementation of the currency redesign within the context of the CBN Act and the overall imperative for a sound financial system.
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Governor Bello Matawalle of Zamfara has ordered the arrest of anyone who refuses to accept the old currency notes of two hundred, five and one thousand naira in the state.

He said the old currency notes remain legal tender until the final verdict of the case instituted against the Central Bank of Nigeria (CBN) and the federal government by three Northern Governors of Kaduna, Kogi and Zamfara States at the supreme court.
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“As you are all aware, the economy of the country as a whole has been plunged into a serious crisis by the decision of the Central Bank to cease recognition of the old naira notes as legal tender from February 10th. This decision compounded the already dire situation of our State occasioned by banditry and sundry crimes, which significantly disrupted economic activities in the State and the subregion over the years,” Gov. Matawalle said.

“It was in consideration of the grave consequences of this disruptive policy which was not well thought out, that I took the decision to team up with the sister states of Kaduna and Kogi to seek the intervention of the Supreme Court to ensure that both the new and old naira notes remain as legal tender beyond February 10th. Gladly, the Supreme Court has given an interim injunction barring the CBN from enforcement of its plan of derecognizing the old notes as legal tender from today, pending its final ruling on the matter on February 15th.”
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The Supreme Court has invalidated the new naira design policy initiated by the Federal Government on the grounds that it was not done with due consultation and in line with constitutional provisions.

Following, the apex court ordered that the old naira notes shall continue to be used side by side with the new naira notes till December 31, 2023.
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Something rather out of the ordinary occurred in Nigeria, Africa’s most populous nation and largest economy, this past weekend: the (now former) Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, was suspended from office by the country’s newly elected President Bola Tinubuand. Hours later, Emefiele — who had been at the helm of the CBN for nine years, during which time the Nigerian currency lost 65% of its value and inflation almost tripled — was taken into custody by Nigeria’s secret police, the State Security Service (SSS).

Governors of central banks, which are generally independent authorities, are rarely suspended from their posts, and they are hardly ever arrested. For the moment, it is not entirely clear why Emefiele has been detained but there are a whole slew of possible reasons. The arrest follows a months-long investigation into his office by the SSS, which tried unsuccessfully to arrest him in December on allegations of “financing terrorism, fraudulent activities, and economic crimes of national security dimension.”

All-Out War on Cash

Those “economic crimes of national security dimension” presumably now include waging an all-out war on cash, with dire consequences for Nigeria’s already embattled economy. Between January and February, the CBN withdraw all high-denomination notes from circulation and failed to replace them with the newly designed notes it had promised, triggering a cash crunch. The central bank also placed stringent limits on the daily cash withdrawals of anyone who could access cash. As with India’s brush with demonetisation in 2016, the result was unmitigated chaos and economic pain — in a country where 63% of the population was already poor and 33% unemployed.
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The House of Representatives on Tuesday mandated the Committee on Banking Regulation to investigate the use of the United States Dollar and other foreign currencies as legal tender for domestic transactions in Nigeria.
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The Supreme Court, on Wednesday, ruled that the old and new Naira denominations will co-exist as legal tender until further notice.

The Federal Government had on November 21, filed an application before the Supreme Court seeking an extension for old Naira notes to remain in circulation.

The CBN recently said old and new Naira currencies remained legal tender indefinitely.

Recall that in March 2023, the Supreme Court had extended the deadline to phase out old Naira notes to December 31, 2023.

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The Central Bank of Nigeria (CBN) clarified its position through a post on X, refuting a Saturday report that suggested the potential conversion of foreign currencies in citizens' domiciliary accounts to naira as a measure to address the ongoing foreign exchange crisis in the country.

According to the report, a source had said the government will order the conversion of foreign currencies sitting idly in individuals’ and corporate organisations’ domiciliary accounts to naira — at a rate to be determined by the CBN.

Addressing the report, the CBN said there are "No plans to convert $30bn domiciliary deposits to naira. This news is fake!’’
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