The decision to mop up the Nigerian currency may, on the surface, tickle a populist instinct. But at bottom, it is not only bad economics but also dangerous for all. The Central Bank of Nigeria (CBN) governor unearthed the policy to a storm. First, the finance minister dissociated herself from it. We are not sure if this was out of institutional pride or ideological difference. But one thing is certain: Godwin Emefiele, the CBN governor, being the chieftain of the monetary side of the economy, was not in sync with the fiscal region. This is the same problem we headlined when the Kuje Prison attack happened, and we pointed out the lack of coherence among the security agencies.
If the President approved the CBN idea, he probably did it out of a good heart. But economics is not about charity, it is about what is and not necessarily what ought to be. What ought to be becomes more conjectural and speculative, and it is a risk that must be calculated before a plunge.
The apparent reasons for the step are, one, we have a lot of money outside the formal financial system. Two, politicians are believed to hoard our currencies because they acquired them through illicit means. Three, terrorists operate their blackmail cash outside the banking halls
But there are questions that the CBN needs to address. One, it says an estimated three trillion naira is in the informal sector. Granted it is right, what is the percentage of this in the hands of politicians, in the hands of bandits and in the normal informal sector? There are no clear or even estimated numbers to tell this story and, therefore, inform the decision.
The president should have consulted widely and taken steps, once the implantation got under way, to anticipate and minimise the after-effects or shock. The President has an economic team. Nothing in the form of a proper consultation took place. The consequence has not been cheering. The fiscal side of the economy has to come to terms with the earthquake of the monetary folly.
One of the results is the free fall of the naira. The value has dropped by about 100 naira since the decision, and there is no telling where this might end. The Economic and Financial Crimes Commission (EFCC) has swooped on operators of bureaux de change. It is hard to see where the operators have violated the law. They are a product of the law and they are being apprehended for doing the right thing. It is obvious that the government is blaming a scapegoat for its own failures to rein in the volatility of our currency.
Mopping up the naira has been done in quite a few countries, especially to delegitimise counterfeit currencies. It occurs often in the formal sector. So, it is easier to track, and dross can be flushed out.
We have witnessed some bring the “errant” money back into the system but at what cost? We are chasing trillions of naira with trillions of naira. It obviates the goal of stemming inflation. If the lack of inflation will be achieved in the long run, the CBN forgets that the new currency will return to where the old one inhabited: outside the banking vault. This is because the policy punishes but does not reform. The behaviour of those who keep money outside will not stop once they know the new notes can always operate again outside the banking sector. The policy also does not count the huge populations displaced by fear and banditry, and this affects 22 states in the country. They will find it hard to access banks. This may even undermine the January 31 deadline.
It is a wrong decision, if not wrong-headed.