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Nigeria’s Currency Redesign and Withdrawal Limits: Questionable Policy and Bad Timing



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Towards the end of last year, Nigeria’s central bank launched new bank notes. It also imposed withdrawal limits on individual and corporate accounts. The bank put forward a number of reasons, including the need to fight currency counterfeiting and to promote a cashless economy. But many Nigerians don’t seem to buy the logic. The feeling is that the timing of the policy, a few weeks before a general election, is wrong. Stephen Onyeiwu says the country needs to build investors’ confidence and reduce bureaucracy – and this isn’t the way to do it.

The Central Bank of Nigeria launched new banknotes in November 2022. The new notes came into effect on 15 December 2022. The apex bank also capped withdrawal of the new banknotes at N100,000 (US$222 at the official exchange rate) per week for individuals, and N500,000 (US$1,111) for corporations. Reactions across Nigeria were swift and acerbic. The National Assembly called for the suspension of the policy, at least until after the 2023 general elections.

Concerns were expressed that the withdrawal limits were too low and would impose hardships on Nigerians. Following those concerns, the central bank raised the limits to N500,000 per week for individuals, and N5 million ($11,111) for corporations. But does Nigeria need to redesign its currency? And why is it necessary to impose withdrawal limits, especially for a country that aspires to scale back regulation and liberalise its financial sector?

Why the central bank introduced the policy

The bank says the new banknotes are being introduced to rein in counterfeiting, promote a cashless economy by limiting the amount of the new banknotes that can be withdrawn, reduce the large quantity of dirty notes circulating in the economy, discourage hoarding, curb crimes like kidnapping and terrorism, and head off illicit financial transactions. It also sees the policy as a way of addressing the huge amount of currency outside the formal financial sector; 85% of banknotes circulate outside the banking system, largely because of hoarding and illicit financial transactions.

The introduction of the Bank Verification Number system, which requires depositors to have a unique number that could be used to determine who they really are, has encouraged criminals and money launderers to operate outside the banking system. The circulation of large quantities of money outside the banking system, according to the Central Bank of Nigeria, makes it challenging to conduct effective monetary policies.

Many pundits believe there’s another, unspoken rationale for the policy’s rules around cash withdrawal: to discourage vote-buying during the upcoming elections. They suggest that limits on cash withdrawal would make it harder for politicians to monetise and corrupt the electoral process.

Not a useful policy

The central bank’s urgency is puzzling. The problems it claims the policy change will solve are not new. I do not see how the policy as it’s been publicly explained will foster a cashless economy. Apart from politicians, top government officials and those involved in illicit financial transactions, most Nigerians don’t stash huge sums of cash away. How could they? The country’s unemployment rate is 33%; the minimum wage is N30,000 ($67) per month. Most Nigerians don’t have enough money in their bank accounts to be worried about withdrawal limits.

Besides, the country is already making progress in becoming cashless. During my recent seven-month stay in Nigeria, I was impressed by how I could pay the Uber driver through bank transfer with my phone, purchase assorted goods at the local market through transfers, and use point of sale to withdraw money when cash is necessary.

Meanwhile, if its goal, as pundits suggest, is to curb vote-buying, then the policy still likely won’t be effective. Politicians will always find a way of using money to influence the political process. They could resort to the use of foreign currencies. There has been a surge in the demand for dollars and other foreign currencies, following the announcement of the policy.

And then there are the new banknotes. The central bank claims it redesigned the naira to head offSet featured image the nationwide spate of kidnappings, terrorism and other violent crimes. But surely this will just give criminals an incentive to demand dollars or other foreign currencies from their victims.

Implementation already flawed

People have been given up till 31 January 2023 to return old naira notes to banks, central bank cash offices, and other designated financial intermediaries. But the 38 million Nigerians (or 36% of the adult population) who don’t have a bank account have no choice but to hold on to the old notes. Banks don’t have enough of the new ones to exchange for the old ones.

Unbanked Nigerians cannot deposit the old notes in an account. To avoid this dilemma, the central bank should have allowed the old and new notes to coexist as legal tender, while the former is gradually phased out. It’s not just the banks that don’t have access to the new banknotes. Ordinary Nigerians are struggling, too.

The top Central Bank of Nigeria officer who appeared before the National Assembly to brief members about the new policy did not readily know how many banknotes had been printed. That points to the lack of planning for the implementation of the policy.

The bank failed to carry out due diligence in calculating the optimal quantity of the new notes needed to maintain stability in the financial system. The old naira notes are expected to be phased out by the end of January 2023, but there are doubts that the bank will meet this deadline. Although the central bank has embarked on a sensitisation exercise to assure the public that things will be fine, it should have done so simultaneously with the announcement of the policy.

Jitters and uncertainty

The timing of the policy announcement and rollout is bad. Domestic and foreign investors are already jittery about the upcoming elections and the state of the Nigerian economy. This new policy will add another layer of uncertainty. For a country that is grappling with slow economic growth, inflation and exchange-rate volatility, the last thing the central bank should do is destabilise the economy by introducing a policy whose immediate benefits are questionable.

Stephen Onyeiwu is an Andrew Wells Robertson Professor of Economics, Allegheny College.

Courtesy: The Conversation

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Inquiry on General Babangida’s Involvement in Conventional Banking despite Introduction of Islamic Finance in Nigeria




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Dear Editor,

I hope this letter finds you well. I am writing to express my curiosity and seek clarification on a matter that has caught my attention, specifically pertaining to General Babangida’s involvement in the conventional banking industry despite his role in introducing Islamic finance during the financial reforms of his military government in Nigeria. Vide your special article commemorating his 81st Birthday published in your esteemed news website:

It is indeed noteworthy that General Ibrahim Babangida played a pivotal role in shaping the economic landscape of Nigeria by introducing Islamic finance principles. It is fascinating to witness the implementation of Islamic finance in Nigeria, as it promotes principles that align with religious and ethical values. General Babangida’s efforts to introduce this form of finance were undoubtedly commendable, reflecting his commitment to establishing an alternative financial system that adheres to Islamic principles.

However, recent observations suggest his active participation in the conventional banking sector in Nigeria. Certainly, it is intriguing to see General Babangida’s continued involvement in the conventional banking industry, which operates under different principles. While some may argue that his involvement in both sectors is simply a matter of personal choice, it raises questions about the compatibility of his actions with the ideals and principles of Islamic finance. While the former is interest driven, the latter prohibits interest related transactions completely.

I wonder if General Babangida has ever publicly addressed this matter or explained his reasoning behind being active in both sectors. It would be enlightening to hear his perspective on how he reconciles his involvement in conventional banking with his efforts towards promoting Islamic finance. This has raised questions in my mind and perhaps in the minds of others as well.

I am keen to understand the rationale behind General Babangida’s dual engagement in both Islamic finance and conventional banking. Does this reflect a strategic approach to diversify Nigeria’s financial sector, or are there specific reasons behind his involvement in conventional banking despite advocating for Islamic finance principles?

Additionally, it would be interesting to explore the potential impact of his dual involvement on the perception and growth of Islamic finance in Nigeria. Does his presence in the conventional banking industry hinder the progress of Islamic finance, or does it have the potential to bridge the gap between the two sectors?

I believe that delving into these questions could provide valuable insights and generate constructive discussions within the Islamic finance community in Nigeria. By shedding light on General Babangida’s dual involvement and the potential implications, we can further enhance our understanding of the challenges and opportunities faced by the Islamic economy in our country.

Thank you for considering my questions, and I look forward to reading more about this topic in your esteemed Focus on Islamic Economy.



Abba Musa Mamman Lagos


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10 Megatrends Shaping the World in 2024




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The report, “Navigating Megatrends Shaping Our Future in 2024”, was launched during the first day of the World Governments Summit (WGS) 2024, being held under the theme “Shaping Future Governments” from 12th-14th February in Dubai. The report examines the indicators that shape these megatrends, supported by evidence from today as well as future expectations. These trends inform decision-makers and foresight experts about various sectors and the potential opportunities in each.

Khalfan Belhoul, CEO of Dubai Future Foundation, said, “This report has been launched in line with DFF’s efforts to identify and communicate those trends with the most potential to shape opportunities and strengthen local and international partnerships to overcome current and future challenges.”

“The challenges that face us on our journey to the future require that we are agile enough to be able to adapt to rapid change. It is vital we pay attention to the signals we detect – only then can we be prepared to overcome challenges and seize opportunities. The World Governments Summit provides a platform for discussing these challenges and exploring the opportunities.”

Materials revolution

New types of materials will create a shift in the industry, with solutions based on artificial intelligence (AI) such as biopolymers, biorefineries, and chemical recycling paving the way. These solutions will facilitate the development of new biological and novel materials that could rival plastics.

Boundless Multidimensional Data

Enabled by developments such as 5G and 6G in addition to advanced connectivity, the availability of raw data will vastly increase. The Internet of Things (IoT) will continue being deployed in healthcare, agriculture, and smart cities, especially in the Middle East.

Technological Vulnerabilities

The cybersecurity sector will boom amid a sharp rise in smart home devices and wearable tech. According to a report by Allianz, the annual cost of ransomware is projected to reach around $265 billion by 2031. Meanwhile, the debate on the future of decentralised finance will continue.

Energy Boundaries

Advances in tech and the growing demand for energy will drive the pursuit of alternative sources of energy. Novel materials and machine intelligence will enhance current sources of energy, including their distribution around the world – and in space.

Saving Ecosystems

Approaches to conservation will be more interdisciplinary and future-focused, taking into account both societal and environmental factors. Driven by resource scarcity, climate change, and shifts in social values, environmental impact management will become increasingly holistic.

Borderless World – Fluid Economies

The world is witnessing a rise in unmediated transactions in finance, health, education, trade, services, and even space, which are blurring boundaries and creating more cross-border communities. Advances in communications, computing, and advanced machine intelligence will accelerate the creation of a borderless world that will change the way we work, live, and connect.

Digital Realities

The spread of 5G and 6G networks will enhance the applications of autonomous technologies and IoT. As quantum technologies become scalable and reliable, immersive experiences will become even more realistic.

Living with Autonomous Robots and Automation

Robotics and automation will increasingly be deployed across industries beyond automotive, manufacturing and supply chain logistics. This will provide opportunities for efficiency and innovation, although there will also be ethical challenges to address.

Future Humanity

New workplace norms will emerge, with people needing to adapt to non-traditional skill sets in areas such as digital literacy, communications, culture and sustainability.

Advanced Health and Nutrition

Accelerated progress in advanced machine intelligence, nano- and biotechnology, additive manufacturing, and IoT will transform health and nutrition, improving health and wellbeing for people of all ages. Technology will reduce, if not eradicate, some communicable and non-communicable diseases and enhance the sustainable use of and access to water and food.

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Africa’s New Online Foreign Exchange System will Enable Cross-border Payments in Local Currencies – what you need to know




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The high cost of making cross border payments on the African continent has driven governments on the continent to seek options of settling trade and other transactions in local currencies. This has given birth to the Pan-African Payment and Settlement System which was formally launched in Accra, Ghana, in January 2022.  Development economist Christopher Adam, who has studied the exchange rate policies of African countries, answers some key questions.

Why are African countries exposed in the international currency market?

Three main reasons. First, African economies are small and as such are highly dependent on trade with the rest of the world. Their exports are dominated by primary commodities including oil and gas, minerals and cash crop agriculture. On the import side, they purchase a whole range of goods – from essential commodities not produced at home such as fooddrugs and medicines, to capital goods and energy. A large proportion of these are sourced from China and other major economies of the global north. But because African countries are small relative to their trading partners they rarely have the power to determine the prices of imports and exports. They are “price takers” in world markets. And with world prices being set in the major reserve currencies of the world (the US dollar, euro, yen and renminbi), African countries are exposed to movements in these world prices. Second, “intra-African” trade is still a relatively small proportion of the total trade of African countries.

Finally, since African countries’ currencies mostly can’t be directly exchanged in international transactions, the dollar remains the most widely used currency in trade, even between African countries.

What’s required for the system to get off the ground?

The basic idea of the system is to be able to settle trade between African countries without having to use the US dollar.  There are two major challenges with that. First, intra-African trade accounts for less than 15% of Africa’s exports at present (although supporters of the African Continental Free Trade Area expect this to grow significantly over the coming decades). The African payment system therefore does not eliminate the role of the dollar (or other foreign currencies) in trade settlement entirely.

The second issue is that trade is not balanced between African countries. For example, Kenya exports goods of higher total value to Ethiopia than it imports from Ethiopia. If Ethiopia paid in its own currency, Kenya would end up with Ethiopian currency that it didn’t need. Some form of settlement currency that is acceptable to all is required – most likely the US dollar.

What are the challenges and potential risks?

Since trade rarely occurs instantaneously, some institution in the trade financing chain carries the exchange rate risk. Because of the gap between placing an order for imports and receiving them to sell in the local economy, there is a risk that the value of local currency will change relative to the currency in which the import is denominated.

In the “old” system, this risk is borne by the trader because everything is priced in dollars. The local currency value of the income from exports or the local currency cost of imports will change with movements between the local currency and the dollar, but the banks and those counterparts pricing in the dollar are protected.

Under the new system the same allocation of risk will remain in “external trade”. This currency risk is also present for intra-African trade.

An important question for the new African payment system is: who bears the exchange risk if one African currency depreciates relative to another? Should the importer carry the risk, or the exporter? Can and should the African payment system bear this risk of exchange rate movements itself? Where both currencies are volatile, traders might still prefer the relative stability of settlement through the US dollar.

The success of this system also depends on scale. The more trade settlement is routed through it, the easier it will be to settle in local currencies. Large currency imbalances will be less common. But until the system achieves this scale, the African payment system will need a strong balance sheet so that traders and participants can have confidence that settlement will be swift and risk free. It is unclear at the moment how this is to be achieved.

What is the best case scenario?

If the system can address the trade imbalance problem, provide clarity on risk management and reach scale, it could be very successful. But this is all going to be driven by underlying economic performance. Improved settlement will help but what is really driving this is the structure of trade. The more the economies of Africa can develop intra-African trade and the less dependent they are on extra-African trade, the less will be dollar dependence in trade. This growth in trade depends to some degree on trade settlement and trade financing but much more on production, consumption, trade policy and fiscal policy.

Christopher Adam is a Professor of Development Economics, University of Oxford

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