Ex-CBN Deputy Governor, Kingsley Moghalu
Eko Hot Blog reports that a former Deputy Governor of the Central Bank of Nigeria (CBN), Kingsley Moghalu, has explained the pros and cons of the decision of the CBN to redesign some naira notes.
Moghalu, who disclosed his support for the decision in a series of tweets via his Twitter handle on Friday, however warned that the plan may hurt the value of the naira.
Recall that CBN Governor, Godwin Emefiele, had on Wednesday said that the apex bank would redesign the country’s N200, N500, and N1,000 notes.
Emefiele said the action was taken in order to take control of the currency in circulation just as he posited that the bulk of the nation’s currency notes were outside bank vaults and that the CBN would not allow the situation to continue.
In his reaction, Moghalu described the move as a “necessary step” for the good of the economy.
He argued that the CBN is trying to gain control over money supply in the economy.
But the former presidential candidate warned that people who are holding huge amounts of cash outside the banking system will go the parallel forex market to buy hard currency, putting further downward pressure on the value of the naira.
Moghalu, therefore, doubted that the naira redesign plan will solve inflation.
“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.”
Moghalu’s comments echoed those of the Minister of Finance, Budget and National Planning, Zainab Ahmed.
Appearing before a senate committee on Friday, she said her ministry was not consulted about the plan to redesign some of the nation’s currency notes on December 15, 2022.
She warned that it would provoke negative consequences on the ailing economy.
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