February 7, 2023

The political dimension and ramifications of the naira redesign

By Dakuku Peterside

NIGERIANS are literally facing a cash shortage and everything else in between. Banks are overwhelmed by angry customers demanding money—their money, for that matter. The automated teller machines, ATMs, are flooded with furious Nigerians shoving and struggling to withdraw cash, and some spend several grueling hours, and in some cases, the whole day, hoping to get a few naira notes for their needs. POS operators complain about a lack of funds; some charge customers up to 20 per cent to obtain cash.

For example, if you want to cash out N5,000, you will pay an operator N6,000. Most Nigerians are stranded because the various bank platforms for transferring money need to be fixed, and most cannot make or receive transfers. There is confusion everywhere, and people are coming to terms with this unnecessary, ‘nation-inflicted’ chaos. 

However, the pressure this exerts on Nigeria’s fragile socio-political and economic conditions is enormous and gradually heading to a dangerous tipping point. Various social media platforms are awash with harrowing videos of people’s reactions in various parts of the country, and they all point to the pervasive anger, frustration, and hardship people are going through.

Without the intended consequences, it is a recipe for potential political and economic upheaval if not checked promptly. The political ramifications of the naira redesign are evident, but the implications, intended and unintended, are unfolding quickly, too. Money and politics are like the Siamese twins. Money enables politics, and politics determines who gets what, when, and how.

Money in politics is both a force for good and, at the same time, can be an opposing force. I did not want to say: “a force for bad!” Whenever cash is under any form of threat, politics reacts. Politics is reacting vigorously and vehemently, and claims and counterclaims have been made about the naira’s redesign’s impact on society, the economy, and politics. 

The Buhari administration and the CBN are orchestrating a demonetisation policy that has become the centerpiece of Nigeria’s monetary policy. Although it may seem that this demonetisation policy is a continuation of the CBN’s push for a cashless economy driven more by technology than the use of old fiat notes, the real meaning is lost in reality and translation, and people need clarification, albeit answers, immediately, too! Promises by government that the situation will resolve itself soon, do not wash.

Is this naira redesign exercise, a cash swap exercise, or a policy for proper currency management, addressing inflation, illegally destroying counterfeit notes, and stockpiling cash for illegal political activities? Or is it all of these things put together? Or is it just motivated by politics? The problem is that everybody understands and interprets the actions differently, with unclear and dichotomous interpretations of what is happening. The critical question is: Did the CBN effectively communicate this policy’s aims, goals, process, and intended impact to the people? How did the media frame this policy, and how did Nigerians interpret and make sense of it all? Just as the 2023 general election is around the corner, is this new policy of the CBN politically motivated? 

In recent times, other nations have done some currency redesigns, and we can learn from their experiences. The UK and India have redesigned their currencies lately. But I will use the example of India for the obvious reason that it is closer to Nigeria as a developing nation than the UK. In 2016, Prime Minister Narendra Modi declared that the country’s two highest-denomination currency notes (Rs 1,000 and Rs 500) would be withdrawn immediately from the market.

The plan, termed “demonetisation” by the press, was announced dramatically as Modi’s masterstroke against “black money”. However, the exercise proved not to be a key determinant of the outcome of the Indian elections. Unlike the case of India, will this exercise have more significant political implications, some unintended, that are capable of determining the outcome of the elections or truncating our democracy? Let us examine five ways the naira redesign will affect our politics this year.

First, it will reasonably minimise vote-buying and other forms of financial inducement to the voters, INEC workers, or election entrepreneurs bent on rigging the election. Some have argued that this policy is a master stroke by the government against vote-buying and a blow to the corruption of the electoral process. With the introduction of BVAS and INEC’s resolve to conduct a free and fair election, the window for rigging has become very narrow. Only the buying of votes provides a significant margin for election rigging. Arguably, some candidates and political parties have stockpiled cash for this purpose.

This  sudden Naira redesign and swap may have disallowed the use of this stockpiled money to buy votes and bribe INEC workers. The CBN statistics have it that over 80 per cent of the nation’s currency is outside the bank vaults and possibly stored in private vaults by corrupt members of the elite class who are involved in one crime or another and who wouldn’t be able to defend the source of such huge funds if brought to the bank.

However, some Nigerians are bemoaning their fate because of the hardship this new naira redesign scheme is causing in the country, and they feel that the timing of the implementation is wrong or at best suspicious even if the intention is genuine. The real threat is that elections are a large logistical and capital-intensive venture. Another dimension is that elections will be held without money, both in politicians’ and people’s pockets.

As a parting gift to most Nigerians, President Buhari, in his wisdom, has decided that the current generation of Nigerians must also suffer the trauma of the emergency currency change that the older generation suffered in 1984. The problem then, as it is today, is that whatever the approach’s merits are, there is massive collateral damage among the masses. Second, the naira redesign stops the inflow of illicit money used for political purposes, especially the proceeds of money laundering and financial crime. Often, cash facilitates illegal and criminal transactions because it is not easy to trace it.

These illicit monies always find their way into the system during elections for different unlawful purposes and can influence electoral outcomes. Third, the naira redesign has strangulated economic activities and added to citizens’ financial pressure. This may cause anger against the government and the ruling party, and at this crucial time of the general election, it may be costly. Economic hardship often leads voters to punish the ruling party and favour the opposition. This happened in Greece and Italy.

Therefore, experiments in macroeconomic policy are rare, especially in an election year. Fourth, the naira redesign crisis is exacerbating the existing excruciating inflationary trends. This may seem paradoxical given that a scarcity of cash should have a deflationary tendency instead of an inflationary one. However, this case is different because of the combination of other inflationary elements within the context of the Nigerian economy. These inflationary tendencies are seen in the high cost of fuel, food, and other necessities, and these forces are so strong that the naira redesign crises have not dented the inflationary trend. Inflation at the peak of campaigning and elections is definitely not a good mix.